By Ryan Knutson,, Drew FitzGerald and Dana Mattioli
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 31, 2017).
For the second time in three years, Sprint Corp. is preparing to
leave T-Mobile US Inc. at the altar after months of negotiations to
bring together the two U.S. wireless providers.
The two sides have been exploring a deal that would combine the
No. 3 and No. 4 U.S. carriers by subscribers, seeking to create a
player big enough to challenge the market leaders in a rapidly
changing telecommunications and media landscape.
But directors at Sprint's parent company, SoftBank Group Corp.,
met in Tokyo last week and decided to suspend the merger efforts,
according to people familiar with the matter. Officials at T-Mobile
were caught off guard by the development, said others familiar with
the matter.
SoftBank's founder and chairman, Masayoshi Son, is concerned
about giving up too much control in the potential transaction, said
the people familiar with the break-down in the talks.
The two sides also have been unable to agree on a valuation for
Sprint's shares, they added, though the talks still could be
revived at a later date.
SoftBank, which owns more than 80% of Sprint, had been in
negotiations with T-Mobile's parent Deutsche Telekom AG on an
all-stock deal that would give the German firm control over the
combined U.S. company, said the people familiar with the suspension
of the talks.
Sprint shares tumbled Monday after the Nikkei newspaper in Japan
reported that SoftBank planned to break off negotiations with
Deutsche Telekom. Sprint shares fell 9% to $6.34, while T-Mobile
dropped 5.4% to $59.58 in Monday afternoon trading.
Shares of Verizon Communications Inc. and AT&T Inc., the two
biggest U.S. carriers, slipped Monday, as investors were hopeful
the merger would have reduced competitive pressures.
Sprint, which has a market value of about $25 billion and more
than $30 billion in net debt, has been losing money for years and
has had to leverage some of its network assets to obtain cheaper
loans. T-Mobile's market value is about $50 billion.
One complicating factor in the talks is that Sprint shares have
slumped in recent weeks, potentially hampering what Sprint
shareholders could expect to receive in the deal, as the
transaction was expected to give Sprint shareholders little or no
premium beyond roughly their current value.
Instead of a merger, Sprint plans to invest in its network, said
one of the people familiar with the break-down in the talks who is
close to Sprint.
The latest discussions have been rocky. Back in May Mr. Son
opened a second line of discussions with U.S. cable companies after
the talks with Deutsche Telekom faltered over issues including
price, The Wall Street Journal has reported.
A decision to walk away from the T-Mobile deal would echo the
last time the two companies explored a merger, in 2014. Sprint was
poised to acquire T-Mobile but scrapped the plan after realizing
regulators were sure to oppose it.
In the current discussions, T-Mobile Chief Executive John Legere
was expected to run the merged company, and Deutsche Telekom wanted
to maintain effective control of the carrier so it could include
its U.S. earnings in quarterly reports, The Wall Street Journal has
reported.
In this case, the SoftBank board thought giving up so much
influence was unwise, given Mr. Son's belief that artificially
intelligent robots and other devices are a major business
opportunity and connectivity of those devices will be critical,
said people familiar with the merger talks who know about the
thinking of the SoftBank board.
Sprint CEO Marcelo Claure is also on SoftBank's board.
While Mr. Son had agreed to give up control in principle, he had
been looking for ways to maintain some sort of additional influence
now or in the future, said the people familiar with the SoftBank
board's thinking.
Since the companies broke off merger talks in 2014, T-Mobile has
added millions of new subscribers and passed Sprint to become the
third largest carrier. While Sprint was able to reverse years of
customer losses, it has struggled to turn a profit.
Without a merger, Sprint will need to ratchet up spending on its
network because, analysts say, they have spent far less than their
rivals. In recent months, some Sprint managers have considered
scaling back major internal investments because T-Mobile was
expected to run the combined company, according to Sprint
employees.
If a deal had been reached, its antitrust approval in Washington
was far from assured. Republican regulators under the Trump
administration are thought to be more open to consolidation that
those in the Obama years, but horizontal mergers that eliminate a
competitor, especially in already concentrated markets, typically
face significant scrutiny.
"Sprint needs this merger so much more than T-Mobile does,"
Recon Analytics Inc. researcher Roger Entner said, adding that if
they come back to it later, "T-Mobile and Deutsche Telekom will in
all likelihood be in a stronger position."
Write to Drew FitzGerald at andrew.fitzgerald@wsj.com and Dana
Mattioli at dana.mattioli@wsj.com
(END) Dow Jones Newswires
October 31, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.