The Wall Street analysts at Cowen expect regulators to approve the merger between Sprint and T-Mobile by the middle of next year. Further, those analysts believe the financials of the merged company will be better than Sprint and T-Mobile executives have predicted.
“We expect the DOJ/FCC to wrap up their review of the deal in early April and note that the 180-day FCC shot-clock will also end around this time,” the Cowen analysts wrote in a new report to subscribers this week. “Post close, we expect mgmt. to reaffirm the guidance that it has already provided although we believe the guidance is fairly conservative and believe the company ultimately should be able to delever to <2.0x faster than the 3-4 years it has stated. In addition, we expect the company to begin offering a wireless OTT video service in 2019, begin rolling out FWBB in late 2019/2020, and potentially sign a partnership agreement with a cable company for an MVNO.”
The analysts added that the Sprint and T-Mobile management teams have promised roughly $6 billion in “run-rate synergies,” but the Cowen analysts said that figure is likely “conservative” and that the combined company will generate $8.95 per share in free cash flow by 2023.
Interestingly, the analysts also pointed to the spectrum position that the combined Sprint and T-Mobile would enjoy, arguing that it will allow the company to chase a range of new businesses.
“With >300 MHz of spectrum (per market, on average), the combined company will have the largest spectrum portfolio of the ‘Big 3’ providers that should give them significant capacity to 1) deliver data at a competitive cost per bit, 2) expand into new areas including FWBB/OTT (video) and 3) form partnerships with others who want to utilize its network including cable MVNOs,” the analysts wrote.
Sprint and T-Mobile announced their plans to merge in April, and have since been working to convince regulators at the FCC and Department of Justice to approve their transaction. Specifically, the companies have argued that a merger between the nation’s third and fourth largest wireless network operators would result in an overall increase in jobs as well as an acceleration in the nation’s overall rush to 5G.
Wall Street analysts have generally argued that the odds that regulators will approve the deal are improving, though the Cowen analysts do note that “the combined company may be required to divest a portion of its prepaid business.”