T-Mobile to buy Sprint for US$26.5b in bet on new networks

[NEW YORK] T-Mobile US Inc agreed to acquire Sprint Corp for US$26.5 billion in stock, a wager that the carriers can team up to build a next-generation wireless network and get a jump on industry leaders Verizon Communications Inc and AT&T Inc.

The deal follows years of will-they-won't-they deliberations between Deutsche Telekom AG, the German company that controls T-Mobile, and SoftBank Group Corp, the Japanese owner of Sprint, and comes about five months after an earlier merger attempt collapsed. The combination reduces the wireless industry to three major competitors from four, ensuring heavy scrutiny from regulators.

"This combination will create a fierce competitor with the network scale to deliver more for consumers and businesses in the form of lower prices, more innovation, and a second-to-none network experience," John Legere, the T-Mobile boss who will serve as chief executive officer of the combined entity, said in the statement announcing the deal Sunday. The changes will come faster than either company could do on its own, he said.

Operating as T-Mobile, the company would have about US$74 billion in annual revenue and 70 million wireless subscribers. Verizon is the largest US carrier with US$88 billion in 2017 wireless revenue and 111 million subscribers, and AT&T would be No 2 with US$71 billion in wireless revenue and have 78 million regular subscribers.

The combination values each Sprint share at 0.10256 of a T-Mobile share - US$6.62 a share based on T-Mobile's Friday closing price of US$64.52. The ratio was originally fixed based on T-Mobile's share price at the close on April 9, before news of the renewed talks emerged, and would have valued Sprint at US$6.13 a share based on that price, one of the people said. News of the talks sent both companies' stocks surging, adding to the valuation of the deal. Sprint closed Friday at US$6.50 a share.

Under terms of the deal, Deutsche Telekom will end up with a 42 per cent ownership stake while SoftBank will have 27 per cent. T-Mobile's Mike Sievert will be president and chief operating officer. The German company's chairman, Tim Hoettges, will serve in that role at the combined company, and the board will include SoftBank Chief Executive Officer Masayoshi Son. The companies said they expect synergies of about US$43 billion based on net present value, with more than US$6.5 billion on a run-rate basis.

The deal marks the third time that Son has acted on his long-held plan to combine Sprint and T-Mobile. Previous negotiations broke down after the two sides couldn't agree on how to structure control of the combined entity, people familiar with the matter said at the time.

The two carriers have complementary wireless spectrum that may be a strategic advantage as the companies build a faster fifth generation or 5G network. T-Mobile controls a large portfolio of lower-band airwaves that can travel long distances and pass through walls and windows. Sprint has the largest US holding of higher-band, 2.5 gigahertz spectrum that can handle more data capacity but over limited distances.

The transaction would be "good for consumers, good for the economy, good for the country," Sprint CEO Marcelo Claure said on a conference call Sunday. Claure will serve as a board member of the combined company.

Sprint and T-Mobile together create a larger third competitor that "should be growing at a materially faster pace" than its larger rivals while capitalizing on estimated total cost benefits of about US$64 billion, Jonathan Chaplin, an analyst with New Street Research LLC wrote in a note April 15.

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