Sprint (NYSE:S) has moved a step closer to making an offer for T-Mobile US (NYSE:TMUS), according to a new report. The Wall Street Journal, which cited unidentified sources close to the matter, reported that at least two banks have provided Sprint with proposals for financing a takeover of T-Mobile.
The bids, which have not been finalized, call for a total deal of about $50 billion, with $31 billion being paid to T-Mobile and another $20 billion being used for refinancing existing T-Mobile debt. According to the Journal, the debt financing is important because T-Mobile debt holders could cash in their bonds if the company changes its ownership.
According to the Journal, at least one major Japanese bank created an internal proposal for participating in a potential financing syndicate for T-Mobile, and other large Japanese banks would also be willing to join in such financing as well.
T-Mobile has a market capitalization of about $26 billion, an amount that has increased since the Journal first reported that Sprint was contemplating an offer last month.
The proposals from the banks don't necessarily indicate Sprint will move ahead with an offer, but sources told the WSJ that this is an important step in the process. Now that Sprint knows the financing for the bid can be arranged, it can begin the complex process of negotiating the deal with T-Mobile, Deutsche Telekom (which owns 67 percent of T-Mobile) and Sprint's parent SoftBank, which owns 80 percent of Sprint.
Meanwhile, DT transferred ownership of its stake in T-Mobile to a Dutch holding company from a German holding company, further increasing speculation it may be looking to sell. DT said that it made the transfer as part of a larger internal restructuring to simplify its business, and that the move should not be interpreted as anything else. However, BTIG analyst Walter Piecyk wrote in a research note that DT could have made the transfer to gain a potential tax advantage on an asset sale, according to Reuters.
There is some urgency in making the deal soon as Sprint would want the merger to be finalized by the time the government begins its incentive auctions of 600 MHz broadcast TV spectrum, which is supposed to happen in mid-2015.
A Sprint acquisition of T-Mobile would likely face regulatory hurdles because it would reduce the number of nationwide Tier 1 operators from four to three. The DOJ blocked AT&T's proposed 2011 acquisition of T-Mobile, arguing U.S. consumers would be hurt by moving from four national operators to three.
Neither Sprint nor T-Mobile has confirmed that a deal is in the works. In fact, last week at the Consumer Electronics Show, T-Mobile CEO John Legere seemed to throw cold water on the idea by insisting that the T-Mobile brand is going to be around for the long haul and also by disparaging Sprint and its network. "I can tell you that the T-Mobile brand, attitude, and identity is here to stay," Legere said, according to The Verge. He added: "What we're doing, in any [acquisition] scenario, will prevail."
Analysts continue to be skeptical about a potential deal's chances. "This deal would face a stiff regulatory review. There are concessions that could better the odds, but we think the chances of approval are less than 50%," New Street Research analyst Jonathan Chaplin wrote in a research note. "For example enabling a new entrant like [Dish Network (NASDAQ: DISH)], and/or retaining the maverick [T-Mobile management] would help. Despite less than even odds, we believe that SoftBank may be willing to attempt a deal, if they can structure it to lower the cost of failure. A creative solution may be to offer a break-up fee in 2.5 GHz spectrum. Losing access to say 40 MHz of spectrum would not jeopardize Sprint's business model and would address TMUS' capacity needs down the road."
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Article updated Jan. 17 with additional information.