SoftBank, which wants Sprint to hold the majority of T-Mobile U.S., is currently in the final stage of negotiation with Deutsche Telekom AG, the parent company of T-Mobile U.S. Initially, the Japanese operator was looking for a stock swap agreement, but has now added a tender offer to its list and is believed to be in talks with leading banks to fund the deal.
In July, SoftBank acquired a 78% stake in Sprint for $21.6 billion after getting shareholders’ nod and clearing competition-related concerns of the U.S. Federal Communications Commission (FCC). Notably, SoftBank thwarted Dish Network Corp.’s (DISH) attempt to acquire Sprint by raising its earlier bid of $20.1 billion.
If successful, the transaction with T-Mobile U.S. will offer fruitful synergies for SoftBank. Amalgamation of the two carriers will lead to over 100 million customers and place SoftBank in a much stronger position as opposed to major carriers such as Verizon Communications Inc. (VZ) and AT&T Inc. The new entity will also be the second largest carrier in the world in terms of revenues, surpassing global giant Vodafone. It will also give the Japanese carrier a shot in the arm, with a solid foothold in the largest economy in the world.
However, a number of reasons force us to remain more sceptical than optimistic about the success of the deal. SoftBank may have to compete with Dish Network Corp, as this second largest U.S. satellite TV provider is also considering a bid for the T-Mobile U.S. in the first half of 2014.
We believe that a possible merger between DISH and T-Mobile U.S. has greater potential to clear regulatory hurdles than the same between Sprint and T-Mobile U.S. Currently, T-Mobile is the fourth largest telecom operator in the U.S. while Sprint is the nation’s third largest.
Further, in 2011, the FCC had rejected AT&T’s bid for T-Mobile U.S., stating that it wants four nationwide telecom operators to remain competitive. If DISH acquires T-Mobile U.S., the number of telecom operators in the country will remain four while the figure will come down to three if Sprint executes the transaction.
T-Mobile currently carries a Zacks Rank #3 (Hold).