Sprint and T-Mobile US stocks surged briefly late last week on published reports that preliminary merger discussions have started between Sprint, its parent company Softbank and T-Mobile US parent company Deutsche Telekom.
Bloomberg reported that executives from Sprint and Softbank have been in touch with Deutsche Telekom and that financial firms are angling to facilitate any deal that might come together. Now that the quiet period for the federal 600 MHz auction has ended, telecom companies who participated in the auction can now hold merger-related discussions — and the end of the quiet period has meant ramped-up anticipation of a possible T-Mobile US/Sprint deal. The fresh T-Mobile US/Sprint merger rumors come just days after Softbank Chairman and CEO Masayoshi Son told investors on the company’s results call that T-Mobile is the “real first synergy” for Softbank to consider in terms of potential mergers in the U.S. market.
“T-Mobile … would be the first priority. And I would like to be very sincere in trying to start a negotiation,” Son said. He went on to add, “There’s lots of conditions we have to think about. And so that is why we want to be open if there’s any other possibilities with better conditions and better opportunities for this industry consolidation. Of course, we like to keep our doors open. We’d like to have our minds open, our hearts open in thinking what can be done. … And so as we look ahead, again now the door is open. We can start the negotiations, so we’d like to be very proactive in starting a negotiation.”
Softbank hit a milestone in its most recent results when it reported a trillion-yen profit ($8.79 billion) for the quarter — which Son contributed in part to improved performance at Sprint.
“The driver for the growth is actually now Sprint,” Son told analysts. “Many of you have thought Sprint is actually dragging our growth. … That’s the kind of image you may have. But by a year ago, I started saying that Sprint is now becoming turning around. It is showing the sign now that we will be seeing Sprint as a growth engine.”
Sprint has also reportedly been mulling the value of its spectrum holdings — which may be a significant bargaining chip in light of the $3.1 billion purchase price that Verizon is laying out for Straight Path’s millimeter wave spectrum holdings after a bidding war with AT&T. Sprint’s spectrum holdings have been valued at $16.4 billion.
T-Mobile US controlling stakeholder Deutsche Telekom also indicated that merger chit-chat was likely now that the regulatory limit on such conversations has been lifted. “Now that the quiet period has ended it is possible, if not likely, that there will be various discussions regarding various potential strategic combinations among industry participants, including ourselves,” Deutsche Telekom CEO Tim Höttges told analysts on the company’s quarterly call. “It is, of course, far from clear that these will lead to anything.”
Höttges called T-Mobile US’ strategic future “the market’s favorite subject” on the company’s results call and said T-Mobile’s strong performance was “an exception success story.
“I think we deserve some credit for our consistent investments for the deals we have done, and for the ones we did not do,” Höttges added. “When it comes to the relative merits of different industrial combinations — it is of course clear that we will not be specific here — from a conceptional perspective we like consolidation, and we like convergence,” he went on. “Each offers opportunities for synergy and scaling, but there are also many other factors to consider, such as relative valuations, financial leverage, or future governance. There is no rush at all, and we are happy to evaluate any opportunity together with our colleagues in the U.S. from a position of strength, and with the primary goal to create even more value for customers and shareholders.”