It will be T-Mobile and its parent company Deutsche Telekom that acquire Sprint, predicted the analysts at Wall Street research firm Wells Fargo. That’s a change from the firm’s previous calculation that Sprint and its parent company SoftBank would be the buyer in a transaction between the nation’s third and fourth largest wireless network operators.
“In December 2016, we published a note titled ‘S/TMUS Merger in a Trump Administration’ in which we assumed S would be the controlling shareholder and acquire TMUS for $93.4B in total enterprise value. Based on recent commentary from both Deutsche Telekom (DT) and TMUS, we now believe TMUS/DT should be the perceived buyer with Sprint/Softbank retaining a minority position in the combined entity,” the analysts wrote in a new research report issued to investors this morning.
Importantly, the Wells Fargo analysts also offered predictions for how the transaction might be structured. Specifically, the firm said it expects the financing mix to be 70% common equity and 30% debt (roughly $30.3 billion in common equity and $12.97 billion in debt), and that T-Mobile will assume Sprint’s $40.9 billion in gross debt.
“This estimates that TMUS will pay $10.84/share for Sprint, or a 28% premium to its latest price,” the analysts wrote.
Recent commentary by executives from T-Mobile parent Deutsche Telekom seem to underscore T-Mobile’s potential role as the buyer in any transaction. "We decide what, when and how," Deutsche Telekom CEO Tim Hoettges said this week of T-Mobile’s M&A prospects in the United States, as noted by Reuters. DT owns 65% of T-Mobile.
Further, the Wells Fargo analysts also noted that recent comments from T-Mobile and Sprint executives appear to indicate a growing interest in a merger between the companies. Specifically, T-Mobile executives recently have called Sprint’s 2.5 GHz spectrum holdings a “treasure trove that you could do amazing things with.”
The Wells Fargo analysts explained that such statements represent a change in T-Mobile’s stated attitude toward Sprint’s vast 2.5 GHz spectrum holdings.
Indeed, virtually all the executives that would be involved in merger discussions have voiced a positive view of a T-Mobile/Sprint tie-up. For example, in comments this month at an investor conference, Sprint CEO Marcelo Claure hinted that a merger between Sprint and T-Mobile would create a significant competitive player.
“Having a company almost the size of AT&T and Verizon, in which you combine the two mavericks and you create a turbocharged maverick that will continue to fight for consumers, but now with a different scale, the synergies are pretty interesting,” he said.
Separately, T-Mobile CFO Braxton Carter said that T-Mobile would hold talks with Sprint for a possible transaction.
“It’s not a question of will talks happen; of course they’ll happen,” Carter said last week. “There’s a huge prize when you talk about Sprint, and that’s true, hard synergies.”