Surprise Move In Fight for T-Mobile

While Sprint and T-Mobile continue to take their time with merger talks, another bidder entered the negotiations, casting doubt on the current deal. French telecom company Iliad decided to enter the negotiations.

The Wall Street Journal had this story by Ruth Bender, Dana Mattioli and Dana Cimilluca.

The slow-moving mating dance between Sprint Corp. and T-Mobile US Inc. got a jolt Thursday, when France’s Iliad SA made a buyout offer of its own for T-Mobile US, setting up a clash between two of the global telecommunications industry’s brashest titans.

French telecom operator Iliad said it offered $15 billion in cash for 56.6% of T-Mobile US.

The development injected new uncertainty into a merger that already faces serious obstacles, even as analysts assigned long odds to the French company’s bid. T-Mobile US, the fourth-largest U.S. cellphone company, has been in talks for more than six months to be acquired by Sprint, the No. 3 player, majority-owned by Japan’s SoftBank Corp. The two sides have agreed on the broad outlines of a deal valuing T-Mobile US at roughly $32 billion—more than Iliad is offering.

The Sprint deal’s aim is to create a more robust competitor to market leaders AT&T Inc. and Verizon Communications Inc. But that deal is expected to face a tough fight from antitrust authorities, who have made clear they don’t want to see further consolidation among top players in the industry.

Mark Scott and Michael J. de la Merced had these details about the latest offer in The New York Times.

Under the terms of the deal, Iliad said it would offer $15 billion for a 56.6 percent stake in T-Mobile US. The French company said it valued the remaining stake in T-Mobile US at $40.50 a share, based on unspecific cost savings totaling $10 billion to be created from the deal.

In total, Iliad said its offer valued shares of T-Mobile US at $36.20, a 17 percent premium on the carrier’s closing share price on Wednesday. Shares of T-Mobile US closed Thursday up 6.46 percent, to $32.94. The Wall Street Journal earlier reported the approach.

Iliad has gained market share in France by offering cheap deals and improved customer service compared with the country’s larger carriers, including the former state telecommunications monopoly Orange. Iliad ranks fourth in France, behind Orange, SFR and Bouygues.

The Bloomberg story by Scott Moritz and Alex Sherman offered this context about the negotiations.

The emergence of a rival bidder puts pressure on Son to push ahead with his plan to merge the third- and fourth-largest U.S. wireless carriers. Iliad submitted its proposal to T-Mobile’s board, the French phone carrier said yesterday in a statement. T-Mobile confirmed in a regulatory filing that it received the proposal and said it had no further comment. Deutsche Telekom, which owns two-thirds of T-Mobile, isn’t in formal talks with Iliad, said the person familiar with the matter, who asked not to be identified because the situation is private.

“This probably throws a wrench in SoftBank’s plans,” said Jan Dawson, an analyst with Jackdaw Research in Provo, Utah. “With another potential bidder, they may not be able to wait this out. It probably forces them to act faster and could raise the price they were willing to pay.”

SoftBank fell 1 percent to 7,495 yen at 9:05 a.m. in Tokyo trading. T-Mobile jumped 6.5 percent to $32.94 yesterday in New York.

The boards for Deutsche Telekom and T-Mobile still see significant hurdles to a merger with Sprint that need to be addressed before a deal is announced, according to two people familiar with the matter. Some of the concerns are regulatory and some involve the deal structure, the people said. Any deal with Sprint won’t be announced before September, another person said.

T-Mobile also reported earnings, which were actually pretty good, according to the CNET story by Roger Cheng.

The wireless carrier swung to a second-quarter profit of $391 million, or 48 cents a share, helped by a 90-cent gain from a spectrum licensing deal with Verizon Wireless. Excluding the item, T-Mobile would have posted a loss. Revenue rose 15.3 percent to $7.19 billion. Wall Street forecast a profit of 8 cents a share on revenue of $7.04 billion.

T-Mobile shares reacted modestly to the news, but jumped up 5 percent to $32.52 on a report that French telecommunications provider Iliad is attempting to buy T-Mobile.

T-Mobile has been solely focused on customer growth — often to the detriment of its bottom line. The company posted $1.45 billion on an adjusted earnings before interest, taxes, depreciation, and amortization basis, in line with Wall Street’s forecast. Its aggressive moves, which the company makes assuming that the new customers would eventually pay off with more revenue and profit, have shaken up the wireless industry, forcing its larger rivals to respond.

“We have completely reversed T-Mobile’s trajectory and started a revolution that is changing the rules in wireless,” Legere said in a statement.

From a subscriber growth perspective, T-Mobile virtually lapped the competition in the first quarter, adding more so-called post-paid subscribers — or customers who pay at the end of the month instead of pre-paying for service — than the rest of the national carriers. But the second quarter saw the competition step up, with heated rival AT&T particularly benefiting from the same business model.

T-Mobile is a hot commodity right now. If Sprint is going to win, they’re going to have to pay up. But the real catch is if they do increase their offer, will they get regulatory approval to go through with the merger. What is certain is that shareholders are likely to get a better price, something that everyone can be happy about.