A long awaited Sprint Corp S merger may be closer to completion than previously anticipated.
Sprint's parent company SoftBank may be starting informal deal discussions with Deutsche Telekom AG(ADR) DTEGY, T-Mobile’s parent company, according to several recent press reports.
Softbank Group Corp SFTBF CEO Masayoshi Son previously stated that the preferred option of a Sprint merger was with T-Mobile US Inc TMUS .
According to Barclays’ analyst Amir Rozwadowski, the deal will ultimately come down to whether both parent companies can close a complicated and wide bid-ask spread.
What’s On T-Mobile's Wish List?
Based on recent Barclays' meetings with company management, T-Mobile has expressed it wants clear operational ownership in order to make sure a potential deal does not disrupt its three-year growth plan. The carrier also may want compensation for the regulatory risk of the deal (a break fee) and the $10 billion in investment the company believes will be necessary to get to $30 billion in NPV synergies.
What’s On Softbank’s Wish List?
Rozwadowski believes Softbank is more flexible to get the deal done, especially after expressing a clear preference for a deal with T-Mobile. “We believe core considerations for Sprint would include value attribution to its expected margin expansion/and cash flow improvement, and significant 2.5 GHz spectrum holdings. Given its admission that it would be a willing buyer or seller, we believe the company seems more flexible on ownership structure.” 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 ~$20+ billion of post integration synergies to split between the two entities,” said Rozwadowski.
Full attribution to T-Mobile would result in a ~$92 share level, while full attribution to Sprint would result in a ~$14 share level.
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