T-Mobile (NASDAQ:TMUS), Sprint (NYSE:S) Reportedly Revive Merger Talks


T-Mobile US Inc. (NASDAQ:TMUS) and Sprint Corp. (NYSE:S) are currently hammering out the terms of a proposed all-stock merger, according to sources familiar with the matter.

Both parties and their parents, Deutsche Telekom AG and Softbank Group Corp., have been in frequent discussions for the deal, which would see Deutsche Telekom emerge as the majority owner.

T-Mobile CEO John Legere, meanwhile, would run the merged entity should an agreement push through, a source noted.

Being in control is crucial for the German company as it has come to depend on T-Mobile for sales and earnings growth. It also expects to realize potential savings immediately in a deal with Sprint.

The source added that an agreement is still weeks away, and T-Mobile and Sprint have yet to settle on a share exchange ratio. The companies have also not started due diligence on each other.

Both firms declined to comment on the report.

Antitrust Risk

Investors have long yearned for a merger between the third- and fourth-largest wireless carriers in the U.S. given the potential cost reductions and other synergies in store, but the biggest hindrance remains securing antitrust approval.

Regulators rejected the notion of a merger between T-Mobile and Sprint in 2014, and such opposition prompted Softbank to abandon talks to acquire Sprint. The Japanese group would have controlled the combined company if the deal went through, with Deutsche Telekom serving as a minority shareholder.

Initial discussions, however, picked up earlier this year under the new administration.

“Such a deal would take at least a year to get approval and there is much logic on announcing a transaction before the November 2018 election cycle,” Wells Fargo analyst Jennifer Fritzsche wrote in a note.

Executives from both sides have previously noted that a merger makes sense as it would result in a larger entity to take on giants AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ).

The Federal Communications Commission, however, may not deem a three-player market as competitive, according to MoffettNathanson LLC analyst Craig Moffett, who put the odds of approval at 50/50.

The Department of Justice’s policy for horizontal mergers would also affect the prospects since the wireless industry is regarded as being highly concentrated, Moffett noted.

Charter Communications Bid

Given its focus on talks with T-Mobile, Sprint has now put plans about a potential merger with cable company Charter Communications Inc. (NASDAQ:CHTR) on ice.

Altice USA Inc. (NYSE:ATUS), meanwhile, is continuing to work on a bid for Charter.

T-Mobile and Sprint ended the day trading at $62.42 per share and $8.20 per share, up 5.86% and 6.77%, respectively.

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