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Sprint, T-Mobile Talks Collapse as Masayoshi Son Goes Alone

Bloomberg logoBloomberg 11/5/2017 Scott Moritz
A shopping bag sits on a counter as a customer uses a mobile device at a Sprint Corp. store in Glendale, California, U.S., on Monday, April 24, 2017. Sprint Corp. is scheduled to release earnings figures on May 3.: 1497391670_sprint phone© Bloomberg/Bloomberg 1497391670_sprint phone

SoftBank Group Corp.’s talks to merge U.S. unit Sprint Corp. with T-Mobile US Inc. ended after months of negotiations, dashing investors’ hopes for a wireless megamerger and signaling that unlimited data plans and heavy price discounting among U.S. carriers will continue.

SoftBank Chief Executive Officer Masayoshi Son and Tim Hoettges, CEO of T-Mobile parent Deutsche Telekom AG, couldn’t resolve how to share control of the combined company over dinner Friday night in Tokyo, people familiar with the matter said. SoftBank will hold an investor day soon to detail its plans for going forward alone in the U.S., the people said, asking not to be identified discussing private information.

“While we couldn’t reach an agreement to combine our companies, we certainly recognize the benefits of scale through a potential combination,” Sprint CEO Marcelo Claure said Saturday in a joint statement with T-Mobile. “However, we have agreed that it is best to move forward on our own.”

Sprint shares have fallen 14 percent since the end of September as deal talks lingered on without an agreement, and the stock may fall sharply when trading opens Monday in New York. Walt Piecyk, an analyst at BTIG LLC, valued a stand-alone Sprint at $4 a share in a note last week. The shares closed at $6.67 on Friday.

A pigeon rests on a T-Mobile logo outside a mobile phone store, operated by Deutsche Telekom AG, in Munich, Germany, on Monday, Feb. 6, 2017. Even with consumer-price growth accelerating to 1.8 percent -- a rate not recorded since early 2013 -- European Central Bank president Mario Draghi can insist that unprecedented stimulus is necessary to put the recovery on a more solid footing and stoke underlying price pressures that continue to be muted.: 1494444829_309740070© Bloomberg/Bloomberg 1494444829_309740070

Investors had cheered on a combination of T-Mobile, the third-largest U.S. wireless carrier, with No. 4 Sprint as a way to cut costs and forge a bigger competitor to take on AT&T Inc.and Verizon Communications Inc. Without the merger, the industry could return to the intense price wars that have put pressure on profits for all four major carriers -- to the delight of consumers.

Both sides had been telling investors that a deal would create a stronger third player in the U.S. wireless market and could use 5G high-speed technology to deliver data and video service robust enough to compete with cable companies.

Why Mobile’s Future Depends on Scarce Spectrum Space

Even if they had arrived at a deal, T-Mobile and Sprint would have faced heavy regulatory scrutiny to complete a merger. The companies dashed a previous plan to merge in 2014 after meeting resistance in Washington.

“These two are going to find compelling reasons to explore a combination again at some point,” said Kevin Roe, an analyst at Roe Equity Research.

SoftBank plans to boost its stake in Sprint, already above 80 percent, by acquiring shares in

the open market, people familiar with the matter said, though it won’t seek full control.

Deutsche Telekom, based in Bonn, Germany, has maintained throughout the talks this year with SoftBank that it should end up with control of the combined company. Tokyo-based SoftBank had previously seemed amenable to a stock-for-stock merger that valued Sprint at or near its market price, with no premium, people familiar with the matter said last month.

Crown Jewels

T-Mobile is the healthier of the two U.S. companies. Sprint hasn’t had a profitable year in a decade, leaving a pile of credits from net operating losses that could benefit T-Mobile. Sprint also controls the largest holding of 2.5 gigahertz airwave licenses in the U.S., a crown jewel that has been obscured inside a money-losing business. SoftBank’s Son has considered measures like a spinoff of Sprint’s airwaves to help extract some of that value.

T-Mobile, meanwhile, has provided Deutsche Telekom with growth at a time when the European market has been stagnant.

“We’ve been out-growing this industry for the last 15 quarters, delivering outstanding value for shareholders, and driving significant change across wireless,” T-Mobile CEO John Legere said in the joint statement. “We won’t stop now.”

(Updates with SoftBank investment intention in ninth paragraph.)

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net.

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Bernard Kohn

©2017 Bloomberg L.P.

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