T-Mobile Parent Deutsche Telekom Seeking To Renegotiate Price Of Sprint Merger

Topline: T-Mobile parent company Deutsche Telekom is looking to renegotiate the buying price for the American wireless carrier’s takeover of Sprint, in a move that could delay and potentially complicate the recently approved merger, the Financial Times first reported.

  • The German telecoms company, which owns more than 60% of T-Mobile U.S., is seeking a reduced purchase price for Sprint because the company’s share price and performance have deteriorated since the agreed upon price two years ago, sources told the Financial Times.
  • Given that the deal’s current terms offer Sprint shareholders new stock equal to 0.10256 of a T-Mobile share, Sprint’s stock, which currently sits just below $9 per share, is still trading at more than a 10% discount to the overall value of the deal.
  • Renegotiating terms of the sale would complicate the deal’s timeline and could set the stage for a protracted battle between Deutsche Telekom and Masayoshi Son’s SoftBank Group, which owns almost 85% of Sprint and reportedly opposes the move.
  • While T-Mobile has the option to walk away from the deal, many analysts say that the wireless company and its German parent are unlikely to do so: T-Mobile needs Sprint’s large stockpile of spectrum—radio frequencies that wireless signals travel over—in order to be competitive in the looming race to rollout 5G services.
  • There are reasons that both sides will want to get the merger finalized: Deutsche Telekom is hoping to reduce its reliance on Europe, where many wireless carriers are struggling amid increased competition.
  • For SoftBank’s Masayoshi Son, completing the sale of Sprint would allow him to better focus on improving the performance of his $100 billion Vision Fund, which has been losing money on missed investments like WeWork and Uber in recent months.

Crucial quote: “Deutsche Telekom has limited leverage to renegotiate the terms of its Sprint acquisition,” according to Bloomberg Intelligence. “The allure of consolidation, including the acquisition of an attractive spectrum portfolio, suggests only a modest potential improvement in stock-exchange ratio.”

Crucial statistics: Before the merger was approved by a judge on Tuesday, Sprint shares were trading at a 45% discount to the value of the deal, according to the Financial Times. Even after Sprint stock soared 77% on Tuesday after the court ruling, it remains at a 12% discount—hence why Deutsche Telekom is looking to negotiate a better price.

Key background: The move to renegotiate the terms of the deal comes right after a federal judge on Tuesday approved the $26 billion merger. After two years of regulatory limbo, T-Mobile finally won approval to take over Sprint, defeating a lawsuit from state attorneys general which claimed the deal would hurt consumers by eliminating competition. Under the merger, a combined company—which will operate under T-Mobile’s name, would have around 80 million regular monthly subscribers. That would put it on par with major network operators like Verizon, with 114 million subscribers, and AT&T, with 75 million.

Big number: T-Mobile is an important holding for Deutsche Telekom. After several years of steady growth, it now accounts for around half of sales—up from a third in 2014, according to Bloomberg.

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