After years of failed negotiations and market rumors, T-Mobile US Inc (Nasdaq: TMUS) announced a $26 billion buyout agreement of Sprint Corp. (NYSE: S). Sprint investors may be disappointed with the $6.50 buyout price, and analysts say the deal still faces an uphill battle with regulators.
On Sunday, T-Mobile and Sprint, the third- and fourth-largest U.S. wireless providers, said they will join forces to create a new telecom giant with an estimated market cap of roughly $146 billion. The combined company would still be smaller than both Verizon Communications ( VZ) and AT&T ( T), both of which have market caps of more than $210 billion.
However, Sprint and T-Mobile would have a combined subscriber count of more than 120 million users, putting it on par with Verizon and AT&T.
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“I’m excited to announce that @TMobile & @Sprint have reached an agreement to come together to form a new company — a larger, stronger competitor that will be a force for positive change for all US consumers and businesses!” T-Mobile CEO John Legere said on Twitter.
Previous rounds of merger talks between the two companies were complicated by the fact that Deutsche Telekom holds a 63 percent ownership stake in T-Mobile and SoftBank holds an 85 percent ownership stake in Sprint. When SoftBank originally acquired its stake in Sprint in 2012, the company had intended to acquire ownership of T-Mobile as well. However, it will now be Deutsche Telekom taking the reins of the combined company, with Legere at the helm.
CFRA analyst Angelo Zino says the combination of Sprint and T-Mobile would eliminate a major top wireless competitor, which would likely ease some of the pricing pressures on AT&T and Verizon.
“We still see significant potential synergies and more efficient use of cash from a combination,” Zino says. “We also anticipate that it would help support a more favorable wireless pricing environment, as competitive pressures would ease.”
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Unfortunately, for T-Mobile and Sprint investors, the possibility of less pricing competition will likely be a red flag for regulators, and Zino says approval for the deal will be “difficult to obtain.”
The U.S. Department of Justice is currently challenging AT&T’s proposed vertical merger with Time Warner ( TWX). The proposed Sprint buyout would be a horizontal merger of two similar businesses, the type of merger that regulators and courts have historically closely scrutinized.
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Regulators May Block T-Mobile US Inc (TMUS) Deal With Sprint Corp (S) originally appeared on usnews.com
