Sprint (NYSE: S) and T-Mobile US (NYSE:TMUS) are nearing a deal in which Sprint would pay $32 billion for T-Mobile in a transaction that would combine the No. 3 and No. 4 U.S. wireless carriers, according to multiple reports.
According to Bloomberg, the Wall Street Journal and the New York Times, Sprint would pay around $40 per share for T-Mobile. The deal could be announced in July, according to the reports, but they noted that the agreement is not yet final. Under the agreement, according to Bloomberg, Sprint would offer about 50 percent stock and 50 percent cash for T-Mobile, leaving T-Mobile parent Deutsche Telekom with about a 15 percent stake in the combined company.
According to Bloomberg, in addition to the equity value of the deal, T-Mobile has about $14.5 billion of debt and $5.5 billion of cash on hand, giving the company a theoretical enterprise value of around $40 billion.
Representatives for Sprint and DT declined to comment.
SoftBank CEO Masayoshi Son has been open about the need for Sprint to gain greater scale to better compete with AT&T (NYSE: T) and Verizon Wireless (NYSE: VZ), and Deutsche Telekom CEO Timotheus Hoettges has also been open to the idea of creating a "super maverick" in the U.S. T-Mobile CEO John Legere said recently that T-Mobile would benefit from larger scale.
"If you took T-Mobile and gave it a huge amount of spectrum and the economic wherewithal and the scale to take on what we're doing, if I was AT&T or Verizon," I would be worried, Legere told Business Insider, though he used a more profane version of that sentiment.
"AT&T and Verizon dominate the industry's EBITDA and capital investment," BTIG analyst Walter Piecyk told the Times. "And Masa is making a credible case that they not only need scale to compete more effectively in the wireless industry but could also offer new and needed competition for wired broadband."
A deal between Sprint and T-Mobile has been brooded about since late last year. However, regulators at the Department of Justice and FCC have expressed skepticism about such a deal. The FCC has set rules for next year's incentive auction of 600 MHz broadcast TV spectrum that favor Sprint and T-Mobile, and could allow them to acquire more low-band spectrum crucial for boosting network coverage. However, those rules could change if Sprint acquires T-Mobile.
"If significant changes in the marketplace structure occur or a proposed transaction is filed with the Commission in the future affecting the top four nationwide providers and their spectrum holdings, we will revisit our decisions here regarding the reserved spectrum provisions for the 600 MHz Band that we adopt today," the FCC noted. The FCC is reserving up to 30 MHz of spectrum in the auction for smaller carriers like Sprint and T-Mobile.
SoftBank owns 80 percent of Sprint and DT owns 67 percent of T-Mobile. DT has been burned in the wireless M&A world before when AT&T's $39 billion deal for T-Mobile fell apart amid regulatory opposition in 2011. However, DT got $3 billion in cash and another $3 billion in spectrum from AT&T as part of the breakup fee, setting the stage for T-Mobiles revival and its "uncarrier" brand under Legere.
The Journal reported that Sprint would pay T-Mobile more than $1 billion in cash and other assets if their deal is blocked.
If a deal were struck between Sprint and T-Mobile, it would come amid a wave of proposed mergers in the telecom industry. AT&T's proposed deal to buy DirecTV (NASDAQ: DTV) for $49 billion could shake up the video delivery market, and that deal came only a few months after Comcast (NASDAQ: CMCSA) struck its own $45 billion deal for Time Warner Cable (NYSE: TWC), which would merge the two largest U.S. cable providers.
Craig Moffett, the senior research analyst for MoffettNathanson, said he does not think regulators would approve the Sprint-T-Mobile deal, and gave it no more than a 10 percent chance of being approved, especially in the context of the AT&T and Comcast deals, which he does expect to pass.
T-Mobile's Legere puts AT&T, Verizon on notice about potential tie-up with Sprint
Report: DT would keep a stake in T-Mobile in a merger with Sprint
DT open to creating 'super maverick' with T-Mobile US, but is wary of regulatory hurdles
SoftBank's Son acknowledges Sprint lags in LTE, voices admiration for T-Mobile's Legere
Report: T-Mobile wants $1B breakup fee from Sprint if a deal fails
Article updated June 5 with additional commentary.