Sprint and T-Mobile call off merger after months of talks

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New Delhi | Published: November 5, 2017 2:02:24 AM

Sprint Corp and T-Mobile US Inc said they have called off merger talks to create a stronger US wireless to rival to market leaders.

Sprint, T-Mobile, it sector, company, usT-Mobile is a better position than Sprint as a standalone company, analysts have said. (Reuters)

Sprint Corp and T-Mobile US Inc said they have called off merger talks to create a stronger US wireless to rival to market leaders, leaving No. 3 Sprint to engineer a turnaround on its own.

The announcement marks the latest failed attempt to combine the third- and fourth-largest U.S. wireless carriers, as Sprint parent SoftBank Group Corp, and T-Mobile parent, Deutsche Telekom AG, show unwillingness to part with their prized U.S. telecom assets.

The companies’ unusual step of making a joint announcement on the canceled negotiations could indicate they still recognize the merits of a merger and could keep the door open for potential future talks.
The companies said they ended talks because they “were unable to find mutually agreeable terms.”

A combined company would have had more than 130 million U.S. subscribers, behind Verizon Communications Inc and AT&T Inc.

John Legere, president and chief executive of T-Mobile, said in the statement that the prospect of combining with Sprint was compelling but “we have been clear all along that a deal with anyone will have to result in superior long-term value for T-Mobile’s shareholders compared to our outstanding stand-alone performance and track record.”

Sprint CEO Marcelo Claure said that even though the companies could not reach a deal, “we certainly recognize the benefits of scale through a potential combination.”

Claure said Sprint has agreed it is best to move forward on its own with “significant assets, including our rich spectrum holdings, and are accelerating significant investments in our network to ensure our continued growth.”

Failure to clinch an agreement leaves SoftBank CEO Masayoshi Son, a dealmaker who raised close to $100 billion for his Vision Fund to invest in technology companies, with the need to find another option for Sprint.

Sprint is in the middle of a turnaround plan and has sought to strengthen its balance sheet by cutting costs. But industry analysts have expressed concern that the company, weighed down with total debt of $38 billion, has few financial options. Even though its customer base has expanded under CEO Claure, growth has been driven by heavy discounting.

Claure said in August that while Sprint could sustain itself, cost savings from a transaction were significantly better than remaining a standalone entity.

Analysts said an end to talks to T-Mobile would leave debt-laden Sprint without the scale needed to invest in its network and to compete in a saturated market.

Sprint has sought to strengthen its balance sheet by cutting costs. To shore up cash over the past two years, the company has already mortgaged a portion of its airwaves and equipment through sale leaseback deals.

Mark Stodden, telecom analyst at Moody’s, said “To really take the kind of next step from a business that has been stabilized to a business that has been growing is going to require a new more intense investment phase.”

T-Mobile is a better position than Sprint as a standalone company, analysts have said. German majority owner Deutsche Telekom, which owns roughly 65 percent of the U.S. carrier, was the first major carrier to eliminate two-year contracts, a shift quickly embraced by consumers and copied by competitors. The company has also badgered rivals with its unlimited data plans.

Deutsche Telekom CEO Tim Höttges said in a statement on Saturday that T-Mobile has a “strong basis for growth in the upcoming years.”

Both companies had expressed interest in a tie-up this year, and industry analysts expected T-Mobile to have more leverage in discussions this time around. SoftBank was prepared to give up control to do a deal with T-Mobile, sources familiar with the company’s thinking told Reuters in February.

But no deal was announced immediately following the conclusion of a ban on merger talks in April that was associated with a U.S. government auction of wireless airwaves. Both Sprint and T-Mobile said they were open to exploring other options.

An added wrinkle was Sprint’s negotiations with cable companies Comcast Corp and Charter Communications Inc .

A source told Reuters in July that SoftBank was considering an acquisition offer for Charter in a deal where it would combine the cable company with Sprint.

The two companies came close to announcing a merger in 2014 but called it off at the last minute due to regulatory concerns.

Industry executives have said a combined Sprint-T-Mobile entity would have the scale, network and enhanced portfolio of wireless airwaves and a better chance to develop 5G, the next generation of wireless technology.

Legal experts also said earlier this year that it was difficult to predict whether the current administration would be more receptive of a deal.

Industry executives have expressed optimism about the prospect of consolidation on earnings calls. But President Donald Trump has also made populist comments on antitrust and prioritized job creation as a key platform.

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