Sprint and T-Mobile are moving towards closing a deal above the $30 billion range that will merge the country's third and fourth largest telecommunications providers, but antitrust regulators may not give the deal its blessing.
Sprint, which is owned largely by Japan-based SoftBank, has agreed to pay $32 billion comprised of 50% cash and 50% stock to acquire T-Mobile and create a mobile company that can parry with the likes of AT&T and Verizon. The price tag equates to $40 per share, a 17% premium on T-Mobile's closing shares on Wednesday.
Germany's Deutsche Telekom AG, which owns a 67% share of T-Mobile, will receive 15% of the merged companies. However, if antitrust regulators shelve the acquisition, Sprint will have to pay $1 billion in breakup fees to T-Mobile.
"We have to give it a shot," said SoftBank chief executive Masayoshi Son in an interview on PBS Monday night. "Once we have enough scale to have a level fight, a three [player], heavyweight fight, then... I can go with a more massive price war."
T-Mobile, which currently has 47 million subscribers, is known for its disruptive pricing techniques that aim to overturn the mobile market largely dominated by AT&T and Verizon, which both have more than 100 million subscribers each. It poses itself as an "uncarrier" and implements aggressive marketing strategies to lure customers over, including paying $650 to convince them to switch from other providers, dropping international roaming charges and eliminating two-year contracts.
AT&T, currently the largest carrier in the U.S., attempted to close in on T-Mobile with a $39 billion bid, but antitrust lawyers from the Department of Justice blocked the deal, saying that getting rid of a fourth national carrier will remove competition and reduce incentives for innovation. In its lawsuit filed against the merger, the Department of Justice wrote that eliminating T-Mobile's competitive prices and great customer service, something not found in many other telecoms companies, heightens the risk of anti-competition.
"The substantial increase in concentration that would result from this merger, and the reduction in the number of nationwide providers from four to three, likely will lead to lessened competition due to an enhanced risk of anticompetitive coordination," writes the justice department in its lawsuit against the AT&T-T-Mobile proposed buyout.
"By eliminating T-Mobile as an independent competitor, the proposed transaction likely will reduce the competitive incentive to invest in wireless networks to attract and retain customers," it adds.
Antitrust regulators also have their eye on Comcast, which plans to buy Time Warner Cable for $45 billion, and AT&T's proposed $49 billion acquisition of DirecTV.
Investors, however, seem to approve of the deal. Sprint gained 4.8% in closing stocks Wednesday while T-Mobile saw shares rise 6.5% to $36.50. In Tokyo, SoftBank gained 1.6%.
