T-Mobile, Sprint Will Merge Without Asset Divestiture - Sources
T-Mobile US Inc and Sprint Corp are planning to close a merger deal, which was first reported in mid-September, without having to give up their asset sales, seeking to maintain most of their spectrum holdings as much as they can prior to concessions that will be asked by regulators, according to sources.
The merger deal, if it is done, will combine the third and fourth largest US wireless carriers. However, there have been rumors that circulated last week regarding the US Justice Department’s antitrust staff. The staff was reported to be skeptical about the planned merger, although regulators can begin reviewing the corporate merger only when it has been agreed to and announced.
According to people familiar with the matter, the two companies are preparing a strategy that will tackle the regulators’ demands connected to asset sales, which include the divestment of a number of their spectrum licenses after the deal has been unveiled.
The official announcement that will confirm the merger is expected to come in late October or early November. The sources added that they will mainly focus on the agreement’s benefits for the companies’ American consumers. It will also include the development and future innovation of the next-generation 5G wireless technology, which can be quite an expensive investment.
“It is better for Sprint and T-Mobile to listen and learn the concerns of regulators first, and see whether there is anything that can be done to address those concerns,” said Craig Moffet, a MoffettNathanson research analyst.
The merger would create a business that has over 130 million subscribers, tailing Verizon Communications Inc, and AT&T Inc.
Companies typically swerve away from divestiture announcement every time they announce merger deals. US health insurers Anthem Inc and Aetna Inc announced deals a couple of years ago, aiming to acquire peers Cigna Corp and Humana Inc respectively. Both of the companies did not divulge any information about any assets they would be willing to divest. Earlier this year, US federal judges halted both mergers citing antitrust grounds.
Meanwhile, other deals have been announced with divestitures, like Comcast Corp’s planned takeover of Time Warner Cable in 2014. However, the proposal did not come to fruition after regulators called it off.
Moreover, companies normally choose to put caps in their merger deals regarding the amount of divestitures they would willingly accept in their bargains with regulators. Sources said that T-Mobile, which began offering free Netflix to its subscribers in early September, and Sprint have not yet nodded to include such a cap in their merger plan. There are possibilities that they will do so eventually, one of the sources added.
John Hodulik, a UBS research analyst, said in a note earlier this month that the US Federal Communications Commission will probably persuade T-Mobile and Sprint to divest some of their spectrum, since the resulting business of the combined companies would obtain most airwaves in its sector with over 300 MHz, giving hit a substantial lead over Verizon’s and AT&T’s holdings.
Accessing a large amount of spectrum is of major importance when it comes to 5G wireless offerings, which Verizon and AT&T hope to launch in order to more aggressively compete with high-speed Internet services from cable companies.
T-Mobile and Sprint have not yet offered a breakup fee in their discussions. The fee would compensate one side if and when regulators call the deal off. There is a possibility that the fee would be introduced when the deal is finally signed, according to the sources.