Iliad, the French mobile and Internet company, confirmed it has made a $15 billion bid to purchase a majority stake in T-Mobile US (NYSE:TMUS).
After reports of the bid emerged, Iliad confirmed it made a $15 billion offer to T-Mobile parent Deutsche Telekom for 56.6 percent of T-Mobile, at $33 per share. Iliad said it values the remaining 43.4 percent of T-Mobile at $40.5 per share on the basis of $10 billion of synergies to the benefit of the T-Mobile shareholders. Iliad said this leads to an overall value of $36.2 per share, a premium of 42 percent over T-Mobile's unaffected share price of $25.41.
Iliad said the cash portion of the deal would be financed via a combination of debt and equity and that it has the support of "leading international banks" to acquire debt. The equity portion would be around $2.68 billion, and Iliad's founder Xavier Niel would participate in the capital increase.
"The U.S. mobile market is large and attractive," Iliad said in its statement. "T-Mobile US has successfully established a disruptive position, which in many ways, is similar to the one Iliad has built in France."
T-Mobile confirmed it had received the offer but said it had no further comment, according to the Wall Street Journal.
DT considers the $33-a-share offer as not competitive and inferior to a separate bid planned by Sprint (NYSE: S) parent SoftBank, an unnamed source familiar with the matter told Bloomberg. SoftBank CEO Masayoshi Son is reportedly working on an offer of about $40 a share for T-Mobile in a deal valued at about $32 billion.
Sprint's shares were down 6.3 percent to $7.27 on the news. T-Mobile's shares were up 6.69 percent to $33.01 in afternoon trading.
Iliad's bid appears to pre-empt Sprint's planned bid for T-Mobile. Speculation has been building for months that Sprint and T-Mobile will strike a deal; already many of the pieces including the purchase price and the breakup fee, are already reportedly in place. SoftBank has reportedly been conducting talks and due diligence with Deutsche Telekom, which still owns 67 percent of T-Mobile but has indicated willingness to exit the U.S. market. SoftBank CEO Masayoshi Son has been clear he thinks Sprint needs larger scale to compete more effectively against Verizon Communications (NYSE: VZ), AT&T (NYSE: T) and other large telecom players.
Reuters had reported earlier this week that a Sprint/T-Mobile deal would likely not be announced before September, as the carriers worked to complete their due diligence and prepare a detailed case for a deal for U.S. regulators. The DT and T-Mobile boards still see major hurdles to a merger with Sprint that need to be addressed before a deal is announced, Bloomberg reported, citing unnamed sources. Some of the concerns are regulatory and some involve the deal structure.
"This probably throws a wrench in SoftBank's plans," Jackdaw Research analyst Jan Dawson told Bloomberg. "With another potential bidder, they may not be able to wait this out. It probably forces them to act faster and could raise the price they were willing to pay."
A Sprint T-Mobile deal would likely face intense scrutiny from federal regulators, something Iliad would likely avoid since it does not compete at all in the U.S. market, which Iliad noted in its statement confirming the offer.
If Sprint and Iliad were to engage in a bidding war for T-Mobile, Sprint appears well positioned to win. As BTIG analyst Walter Piecyk pointed out, T-Mobile's market cap and net debt totals around $46.5 billion and Sprint's totals $59.4 billion while Iliad's totals just $18.2 billion.
"Iliad is about a third of the size of TMUS and we don't think there would be synergies from the deal. It would be tough to finance without Xavier Neil relinquishing control. Sprint and anyone else with synergies should be able to outbid them," wrote New Street Research analyst Jonathan Chaplin in an investor note in response to the WSJ article. "While we aren't taking this story seriously, we do think there are other credible potential bidders out there for TMUS."
T-Mobile CEO John Legere said during the company's second quarter earnings call today, before the bid was announced, that he does not think T-Mobile needs to make a deal to be successful. T-Mobile added 1.47 million total customers in the second quarter, including 908,000 branded postpaid subscribers.
"T-Mobile is doing absolutely everything that is necessary" as part of its strategy to continue to grow and be successful, Legere said. In terms of "inorganic" opportunities, or deals, Legere said that is "always an opportunity" and that there are "multiple" such opportunities that T-Mobile will consider.
Legere said T-Mobile's management has always been clear that in the long term the wireless industry is a "scale game" and that Verizon and AT&T are "hugely powerful from a standpoint of scale and capital." Legere also said that T-Mobile sees "a path forward to be highly successful as a standalone company" but that T-Mobile knows it could accelerate that growth through a deal.
Yet Legere concluded: "The company is not in need of doing something [in terms of a deal] to be successful in the short to medium term."
Iliad, led by Niel, has shaken up the French mobile market since it burst onto the scene in early 2012 with its low-cost Free Mobile brand--much in the same way T-Mobile has done in the past year and a half with its "uncarrier" brand. Free Mobile has sparked a massive price war in France that has led to French operator SFR selling itself to French MSO Numericable.
For more:
- see this Iliad release (PDF)
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article
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Article updated July 31 at 2:50 p.m. ET to add in confirmation of the bid by Iliad.