Giant International Egos May Derail The Sprint T-Mobile Merger
from the synergies,-yo dept
We've been discussing how Sprint's plan to merger with T-Mobile would be notably awful for the wireless industry. Not only do Wall Street analysts predict it would kill anywhere from 10,000 to 30,000 jobs (potentially more people than Sprint even currently employs), but it would reduce the number of major competitors in the space from four to three -- dramatically reducing the industry's incentive to compete on price and service. The resulting competitive lull could derail many of the good things a resurgent T-Mobile has encouraged in the sector (like the death of long-term contracts and the return of unlimited data plans).
Given the giant industry rubber stamp that is Trump FCC boss Ajit Pai, many analysts believed the administration would approve the deal anyway. Sprint and its Japanese owner Softbank have spent the better part of the year buttering up the Trump administration in preparation for regulatory approval, going so far as to custom craft some job creation bullshit synergies Donald could easily use to justify approval of the arguably-awful deal.
Unfortunately for Sprint lobbyists, they may never get the chance. This week reports out of Japan indicated that Softbank Chair Masayoshi Son had walked away from the negotiations table after a dispute over who should have the most control over the freshly-merged company:
"SoftBank Group plans to break off negotiations toward a merger between subsidiary Sprint and T-Mobile US amid a failure to come to terms on ownership of the combined entity, dashing the Japanese technology giant's hopes of reshaping the American wireless business. SoftBank is expected to approach T-Mobile owner Deutsche Telekom as early as Tuesday to propose ending the talks. They had reached a broad agreement to integrate T-Mobile and Sprint -- the third- and fourth-largest carriers in the U.S. -- and were ironing out such details as the ownership ratio."
T-Mobile and its owner Deutsche Telekom obviously want to retain control of the brand identity of T-Mobile in the wake of the deal, since the company has been immensely successful thanks to actually listening to customers (mostly). Sprint in contrast has stumbled through the last several years loaded with debt, and hasn't been able to craft a brand identity (or a working network) that truly resonates with consumers. It's not particularly surprising that T-Mobile and cheeky CEO John Legere want more control over the merged company than Sprint and Softbank may be willing to give.
The problem for Sprint at this point is that the only thing holding up the company's stock price for most of this year has been merger rumor and speculation. As such, some Wall Street analysts think Sprint might want need to go private if it's to survive fallout from the deal's collapse, while other analysts say failure to finalize the deal could erode up to $50 billion in theoretical value between the two companies:
"(I)f these management teams fail to get this deal across the goal line, they have failed to do their job,” New Street wrote. “They will be walking away from close to $50 billion in value. Regardless of what either side things their asset is worth on its own, adding $50 billion to that starting value would be a big enough increase in value that they ought to have found a way to get the deal done.”
A scuttled deal would be good news for T-Mobile's Legere, who might find synchronizing his consumer-friendly brand with the competition-killing deal a tall order. That said, it remains entirely possible that Sprint's leaked decision to walk away from the negotiations table is a bluff. Since Sprint needs the deal much more than T-Mobile does -- it's more than possible the two sides will still find a way to get the deal done. Should that occur, we can look forward to a winter filled with entirely bogus "synergy" promises as investors wait to see just how big of a mindless rubber stamp the Trump administration truly is.
Filed Under: competition, mergers
Companies: deutsche telekom, softbank, sprint, t-mobile
