Sprint is reportedly preparing to make a bid to purchase rival T-Mobile this year, and its plan has received thumbs up from the investors as well as analysts.
The proposed merger has received the backing of investors of both the companies, who have caused the shares to be driven up by more than 30 percent ever since the merger plan was reported by the media in the second week of December last year. Sprint shares closed up 1.61 percent at $10.75 on the NYSE on Tuesday. On Dec. 12, or the day before the media began reporting on the possible deal, the company's shares closed at $8.15. Likewise, T-Mobile's shares closed up 1.79 percent at $33.64 on the NYSE on Tuesday. On Dec. 12, T-Mobile's shares closed at $25.44.
Masayoshi Son, who is the chief executive of Japanese technology company SoftBank that owns 80 percent of Sprint, has reportedly expressed his interests in building scale in the U.S. market and has approached banks such as Credit Suisse Group AG, Deutsche Bank AG, JPMorgan Chase & Co., Goldman Sachs Group Inc. and Mizuho Bank Ltd. for financing the deal, which may be more than $20 billion. Son is also being adviced by the Raine Group LLC, which was involved in the purchase of Sprint's stake by SoftBank.
Analysts are also being less skeptical about the deal. Jennifer Fritzsche of Wells Fargo expected that the deal will "continue to drive [Sprint] shares higher." Philip Cusick, who is an analyst at J.P. Morgan, said, "there could still be a chance" and the regulatory skepticism has little to do with the deal.
This is not the first time, however, that Sprint has expressed interest in merging with T-Mobile. Both of these companies had discussed a merger a few years ago, but the idea was dropped because they were operating different network technologies (CDMA for Sprint and GSM for T-Mobile) that would have made it harder to combine. Now, however, since both the carriers have upgraded their networks to LTE technology, the deal might prove to be financially rewarding.
If the merger goes ahead as planned, the formation of the new entiry would allow both these companies to cut billions of dollars in terms of costs and help them better compete against Verizon and AT&T. A deal would also boost Sprint's morale as the company was recently given poor ratings in a survey conducted by Consumer Reports.
The deal, however, will be scrutinized by the U.S. Federal Communications Commission (FCC) and the Department of Justice (DOJ), which will want to preserve competition in the country's wireless telecommunications industry.
Sprint may also have to fend off rival bids from television satellite company DISH Network, which is reportedly keen on diving into the wireless industry.
In a related development, Sprint is reportedly planning on reintroducing Nextel, that will focus mainly on business customers. The company is also planning to launch a new prepaid brand called "Sprint Freedom" by merging Boost and Virgin Mobile. "Sprint Freedom" supposedly will be targeted to the lower end of the market's spectrum where less advanced smartphones are used and less data are consumed.
