The agreement gave perfect results for up to four years of intermittent negotiations between the third and fourth largest wireless carriers in the United States, laying the foundation for the creation of a new company with 127 million users. If the M&A transaction is approved by the regulatory agency, the combined new company will exert greater pressure on Verizon and AT&T, the top two wireless operators in the United States.
It is expected that US regulators will inquire about the combined package pricing of the two companies. Previously, the U.S. Department of Justice has sued AT&T, the second largest U.S. telecommunications operator, for its acquisition of Time Warner.
According to one spokesperson, as of the end of the first quarter of this year, Verizon had 116 million wireless subscribers, while AT&T had 93 million brand subscribers.
That year, T-Mobile and Sprint failed to negotiate in the first round of mergers and acquisitions in 2014 because President Barack Obama’s government expressed antitrust concerns.
The two companies said in an analyst conference call that the recent tax reform in the United States will have a positive effect.
T-Mobile and Sprint said they expect the completion of the merger will not be later than the first half of 2019. This is an ambitious goal, but it will be scrutinized by the US regulatory authorities. According to sources who are unwilling to disclose their identities, T-Mobile is not obliged to pay Sprint for failure compensation fees if the regulator blocks the transaction.
The two companies said they expect US government regulators to see the benefits of the deal.
Regarding the ranking of 5G progress, CTIA, the US wireless communications industry industry organization, ranks the United States behind China and South Korea. The plan launched by the Chinese government is to deploy 5G by 2020. The three major operators are advancing on this schedule.
Breakthrough in trading
The news of a breakthrough in M&A negotiations between the two companies was first reported by Reuters on Thursday. Previously, T-Mobile's major shareholder, Deutsche Telekom AG, and Sprint's controlling shareholder, Japan's SoftBank Group Corp, agreed on a framework that would allow Deutsche Telekom to continue to integrate the merged company. The combined company’s book value exceeds US$80 billion.
Based on T-Mobile's closing price on Friday, Sprint’s implied equity is valued at $6.62 per share. Sprint shares closed at $6.50 on Friday.
The fixed exchange rate for the entire stock exchange is to exchange 0.10256 T-Mobile stocks per Sprint stock or 9.75 Sprint stocks per T-Mobile stock exchange.
Japan's Softbank Group and Deutsche Telekom have signed a voting rights agreement to allow Deutsche Telekom to obtain the voting rights of 69% of T-Mobile's shares.
The second round of negotiations between Sprint and T-Mobile on valuation differences ended in November last year. Since then, Sprint's share price has fallen by one-fifth, owing to the market's skepticism about the company's competitiveness under long-term debt burdens of more than $32 billion.
As of the time the two companies reached an M&A deal, the market value of T-Mobile was US$54.7 billion, and the market value of Sprint was US$26 billion.
Invest in 5G technology
T-Mobile performed better than Sprint, although it still lags far behind Verizon and AT&T and ranks third. Moody’s Investors Service Inc. said that because of the introduction of innovative products, improved network performance, and good customer service to attract new customers, T-Mobile has continued to increase its market share.
T-Mobile was the first American operator to cancel the two-year contract. This shift quickly gained consumer acceptance and was copied by competitors. In order to enhance its competitiveness, the company also launched unlimited data packages.
Sprint and T-Mobile are far behind Verizon and AT&T in upgrading their networks to accommodate next-generation 5G wireless technologies. Even after the merger of the two companies, the combined company’s investment in 5G is lower than that of Verizon or AT&T.
Sprint and T-Mobile hope that the deal will give them more energy to participate inDevelopment5G spectrum auction auction. They plan to participate in spectrum auction bidding in late autumn, and they will withdraw if the merger hampered the participation of the two companies.
PJT Partners, Goldman Sachs, Deutsche Bank and Evercore served as T-Mobile advisors, while The Raine Group, J.P. Morgan and Centerview Partners LLC advised Sprint.