Too much pressure from regulatory authorities has forced Sprint to change its mind about going after T-Mobile.
Two people familiar with the proceedings said that the planned merger of the third and fourth-largest mobile carriers in the U.S. has been shelved after Sprint admitted that the challenges of appeasing antitrust regulators far outweigh the benefits of acquiring T-Mobile.
The last few months have seen talks of Sprint supposedly in talks to purchase T-Mobile for anywhere from $30 to $50 billion at various times. Following the report, Sprint's stocks plunged 16% to $6.10 a share while T-Mobile fell by 8.6% to $31 but made a quick recovery by climbing to $33.91 in trading on Tuesday. Japanese firm SoftBank Corp., which owns Sprint, saw its shares drop by 3.5%, continuing this year's ongoing decline for the company.
"The deal never had a chance in Washington," observes senior research analyst Craig Moffett at MoffettNathanson. "Sprint seems finally to have accepted the inevitable. The big winner here is the FCC (Federal Communications Commission). They keep their four-player market and they take a big step towards a successful spectrum auction next year with four independent bidders."
Reports say that Iliad also made a run for T-Mobile, but the $15 billion offer made by the French telecommunications provider was too small for T-Mobile's Deutsch Telekom to consider, although Iliad is said to be on the lookout for partners to help finance its bid for T-Mobile. Mexican America Movil is also reportedly in the running to acquire T-Mobile, which has rapidly captured a market for itself with chief executive John Legere's aggressive pricing strategies. Just last week, T-Mobile announced that it has added 908,000 new subscribers in the second quarter of 2014 and raised its forecast on yearly growth.
"It has lots of headroom in terms of expansion and it (has) good holdings across the country, especially since its purchase of MetroPCS," says Jan Dawson, analyst at Jackdaw Research.
Sprint, on the other hand, is on the losing end of the deal. While the company has made a turnaround with a $23 million profit in this year's first quarter following six years of continuous losses, Sprint still lost more than 200,000 subscribers.
It has been expected that the installation of a new chief executive will follow the merger of Sprint and T-Mobile, but although acquisition plans were shelved, Sprint is reportedly gearing up to replace chief executive Dan Hesse, who has been heading the company since 2007, with Marcelo Claure, head of Brightstar Corp, which Sprint owns a majority stake in.
