Sprint (NYSE:S) and T-Mobile (NYSE:TMUS) saw their stocks surge after some reports on Thursday surfaced regarding the possibility of the duo’s merger. The Kansas carrier’s stock moved up 2.6%, while T-Mobile stock price lifted 1.3% after the news spread. According to a news reported in Japan, Sprint’s parent company Softbank entered into a limited agreement with German-based Deutsche Telekom, T-Mobile's parent company.
What Does that Signify?
Anonymous sources said that Deutsche Telekom has given its consent for the buyout proposition. Other unidentified sources said that the company has not come to any decision, the deal price and other details regarding the source of financing the transaction hasn’t been ascertained yet. However, some believe that there is no update on the combination proposal as such. The news is more of a tactic to keep the merger talks alive for the regulators who have not really given any positive sign of approval. When individual companies were inquired on this matter, each preferred remaining quite.
Bloomberg cited a Kyodo report that said T-Mobile’s parent readily accepted Softbank’s and Sprint’s proposal for acquisition. The report also went on further saying that the companies have come up to a point wherein they would further work on the deal to solidify the agreement and “work out how to proceed with the acquisition.” On a similar note Seeking Alpha cited Kyodo news agency as the source and said that Deutsche Telekom has already signed a deal with the Overland Park-based telecom player.
Keen on Combination
Masayoshi Son, Sprint’s and Softbank’s top boss has been very candid about sharing his view on Sprint and T-Mobile combination. He believes that the two together would be extremely beneficial for both for the newly emerged combined entity, as well as the customers at large. The third and the fourth largest carriers cannot fight the bigger players Verizon and AT&T on an individual basis. But together the two undoubtedly makes a formidable combination.
However, the U.S. regulators seem more than satisfied with the current number of national carriers. T-Mobile has been picking up as it’s aggressively building strategies and undertaking effective marketing campaigns to emerge as a stronger carrier. Also with the current gain in subscriber base, the telecom provider’s position looks better.
The Federal Communications Commission (FCC) and the Department of Justice (DoJ) do not want the number of players in the telecom sector to shrink below four – Verizon, AT&T, Sprint, and T-Mobile. To this Sprint’s Son argues that the industry already has four players – Verizon that purchased Vodafone’s stake in it, AT&T which plans to acquire DirecTV (NASDAQ:DTV), and Comcast (NASDAQ:CMCSA); Sprint would be the fourth one. But these antitrust issues have been a challenge for Sprint.
What adds to the misery is the fact that AT&T has made an acquisition proposal to pay-TV provider DirecTV. And rumors have it that Comcast could counterbid for T-Mobile. If this really happens, Sprint might have to face another roadblock for which it might have to raise its transaction price.
The official bidding for T-Mobile is yet to take place, but Sprint has laid the base work. Whether the deal would materialize strongly depends on the regulators that look rigid at the moment. History does not give a very pleasant outcome of a similar deal proposal when AT&T wanted to buy T-Mobile. But, if things work in favor of Sprint and the regulators agree to the idea of their combination, the U.S. wireless industry could see a sea of changes, and hopefully for the better.