Rivals strike $26 billion all-stock deal, testing antitrust
regulators as 5G race heats up
By Drew FitzGerald, Dana Cimilluca 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 (April 30, 2018).
T-Mobile US Inc. struck a $26 billion deal to buy Sprint Corp.
in a combination that, if allowed by antitrust enforcers, would
leave the U.S. wireless market dominated by three national
players.
It is the third time in the last four years the two rivals have
attempted the combination.
The leaders of both companies are determined to close a deal, if
only because their prospects going it alone grow dimmer by the
year.
New technology, stiff competition from wireless rivals and an
aging cellphone sector keep driving Sprint and T-Mobile into each
other's arms. Both companies hope to squeeze billions in savings by
uniting operations despite their owners' different management
styles and a tough regulatory environment.
The all-stock deal would see T-Mobile, which has a market value
of $55 billion, take control of Sprint, which has a market value of
$26 billion, both based on Friday's closing prices. The two
companies also have about $60 billion of combined net debt.
The combined company, which would be called T-Mobile, would be
run by T-Mobile CEO John Legere.
Under the deal, T-Mobile will exchange 9.75 Sprint shares for
each T-Mobile share. T-Mobile parent Deutsche Telekom AG will own
42% of the combined company and Sprint parent SoftBank Group will
own 27%. The remaining 31% will be held by the public.
Deutsche Telekom would also control voting rights over 69% of
the new company and appoint nine of its 14 directors. The companies
said they hope to close the deal in the first half of 2019.
Joining forces would create a wireless provider in the same
class as Verizon Communications Inc., which reported about 116
million wireless customers in the U.S. at the end of 2017, and
close to AT&T Inc., which said it had 93 million wireless
customers. T-Mobile and Sprint had roughly 59 million and 41
million, respectively, at the end of last year. The figures exclude
some connected devices and wholesale agreements with other carriers
riding atop the major carriers' networks.
The companies will face regulatory challenges in Washington. The
Justice Department sued AT&T Inc. in November to block its $85
billion takeover of Time Warner Inc., and lawyers for the two sides
are making closing arguments on Monday.
In a reflection of the risk that authorities will block
combination, the T-Mobile-Sprint deal doesn't include a break-up
fee that one side would owe should regulators block a tie-up, the
people familiar with the matter said.
The government also has a victory under its belt: It forced
AT&T Inc. and T-Mobile to abandon a planned tie-up in 2011.
In 2014, the then-head of the Federal Communications Commission
made clear that having four national providers was necessary to
ensure competition and lower prices for consumers. That forced
Sprint and T-Mobile to abandon their plans to combine. The current
FCC chairman, Republican Ajit Pai, hasn't drawn the same line about
the number of national providers.
Sprint and T-Mobile executives could make the case that times
have changed. Investments in 5G infrastructure could blur the lines
between cellphone provider, cable company and technology firm. Even
using current technologies, Comcast Corp. has rolled out low-cost
wireless service to its cable customers that rides on Verizon's
network.
"This isn't a case of going from 4 to 3 wireless companies --
there are now at least 7 or 8 big competitors in this converging
market," Mr. Legere said on Sunday. The companies also vowed to
boost hiring and spending in the U.S. after the transaction.
The companies said they plan to add to their combined headcount
of roughly 80,000 full-time U.S. employees once the deal
closes.
"This is one of those few mergers that are actually going to be
net job positive from the get-go," Sprint CEO Marcelo Claure said.
"We're going to go build an amazing network that is good for the
economy."
Teaming up would allow the companies to decommission about
35,000 cellular transmission sites, cutting the cost of rent and
maintenance.
The two companies have already signed a wireless roaming
agreement to set themselves up to merge infrastructure. T-Mobile
technology chief Neville Ray said it could take two or three years
to move all customers onto the new system.
Last year, Sprint and T-Mobile discussed a deal but the talks
collapsed in November after they failed to agree on who would
control the combined company, people familiar with the matter said.
Japanese technology giant SoftBank controls 83% of Sprint.
Germany's Deutsche Telekom owns 62% of T-Mobile.
SoftBank founder Masayoshi Son, whose firm took control of
Sprint for $22 billion in 2013 with an eye toward combining it with
T-Mobile, was reluctant to give up control of Sprint last year. One
person close to Mr. Son said the pressure on Sprint to roll out 5G
technology made him more amenable to relinquishing some
control.
Mr. Son will join the board of the combined company but the
board's chairman will be Deutsche Telekom CEO Tim Höttges. Mr.
Claure will also join the combined board, the companies said.
The companies said they would keep T-Mobile's base in Bellevue,
Wash. and use Sprint's Overland Park, Kansas, offices as "second
headquarters."
The companies pledged Sunday to invest up to $40 billion on the
network and business in the first three years after the deal
closes. But the companies, which own thousands of retail stores,
will also be looking to cut costs. On Sunday, they projected
savings totaling $6 billion in annual costs.
Wireless executives have long complained there are fewer ways to
grow profits now that nearly every American adult -- and many of
their children -- owns a smartphone. They hold onto those devices
for longer, cutting into equipment sales.
All four top carriers now offer plans that promise unlimited
data, making it harder for them to show they're different from
their rivals.
Even T-Mobile, which adds millions of customers each year mostly
at its rivals' expense, has showed signs that growth is cooling.
The company predicted it would add 2 million to 3 million
subscribers with monthly contracts this year, fewer than in
2017.
Meanwhile, network engineers say the next-generation 5G
standards could allow wireless companies to serve huge new markets,
from home internet service still dominated by cable companies to
autonomous cars just now being developed.
But rolling out 5G services will require heavy investment in
cellular spectrum and installing hundreds of thousands of antennas
around the country, which gave new impetus to Sprint and T-Mobile
executives to join forces.
Without a merger, the spending gap with Verizon and AT&T
will only widen as companies rush to install 5G equipment. "You
can't win a race by having half the horses," said Roger Entner, an
analyst for telecom consultant Recon Analytics Inc.
Write to Drew FitzGerald at andrew.fitzgerald@wsj.com, Dana
Cimilluca at dana.cimilluca@wsj.com and Dana Mattioli at
dana.mattioli@wsj.com
(END) Dow Jones Newswires
April 30, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.