Mega-Merger: What Needs To Happen For A Sprint/T-Mobile Deal

It is the telecom deal that everyone is waiting for – who will acquire Sprint?

Sprint’s parent company SoftBank is said to be conducting informal deal discussions with Deutsche Telekom, T-Mobile’s parents company according to several recent reports.

Softbank CEO Masayoshi Son has expressly stated that he prefers a deal with competitor T-Mobile USA.

Talks of a potential merger have sprung up ever since election day when Sprint stock soared over 12 percent, with hopes that the new administration would have a softer stance on a deal that previously may have violated anti-trust laws according to the Obama administration.

It is clear, there will be a Sprint merger, and likely sooner rather than later, but will it be with the clear favorite T-Mobile? Barclays has outlined what needs to happen on both sides.

T-Mobile’s Demands

According to Barclays, T-Mobile has expressed that they want clear operational ownership in order to make sure that a potential deal does not disrupt its three-year growth plan.   The carrier also may want compensation for the regulatory risk of the deal, and the $10 billion in investment the company believes will be necessary to get to $30 billion in NPV synergies.


Softbank’s Demands

Softbank is more flexible and willing to get the deal done, especially after expressing a clear preference for a deal with T-Mobile. “Given its admission that it would be a willing buyer or seller, we believe the company seems more flexible on ownership structure,” said Barclays.    Softbank’s cost basis on Sprint is around $7 per share.

“Ultimately, we believe deal composition comes down to how to allocate the $30 billion+ of NPV synergies and the $10B in incremental investment required to get to the run rate synergy expectations. That leaves ~$20B+ of post integration synergies to split between the two entities, “ said Barclays.

Full attribution of those synergies T-Mobile would result in a ~$92 share level, while full attribution to Sprint would result in a ~$14 share level.