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If Iliad Manages To Acquire T-Mobile They Might Have To Cut Costs In Order To Increase Operating Profit

August 4, 2014 - Written By Kristijan Lucic

You may or may not be familiar with the T-Mobile U.S. saga, but there’s been talk for some while the company is about to be sold by its parent company Deutsche Telekom. T-Mobile is fourth biggest carrier in  U.S., just behind Sprint. You may recall that AT&T tried to acquire T-Mobile three years ago, but the Justice Department and FCC stopped that because of the worries that it would decrease wireless competition (in U.S.). Sprint was the second carrier which tried to acquire T-Mobile, that deal is still relatively alive but has been stagnant for a while. Same issues arise here as well, as they did in AT&T’s case. Sprint offered $40 per share for T-Mobile and then a few days ago a new player joined the race, this time for France.

Fourth largest carrier in France, Iliad, made a bid for T-Mobile as well. They offered somewhat less than Sprint, $33 per share. Iliad is trying to acquire 56% share in T-Mobile and they’ve offered $15 billion in order to get Deutsche Telekom to sell. 56% share would be enough for them to have the majority stake in the company. Note that Iliad controls around 13% of the French mobile market and the company’s is valued at $16 billion (market value), which is a billion more than they offered for T-Mobile U.S. which is valued at $25 billion.

Shortly after this happened, Deutsche Telekom rejected Iliad’s offer. It is still unknown why that happened, it may be due to the price offered or the fact Deutsche Telekom is still hopeful of pushing through the Sprint merger (or both). It is also possible Deutsche Telekom wants to sell more than 56% of the company.  Either way, the saga continues. T-Mobile has successfully disrupted the market and is gaining more and more people to use their network. Sprint merger is still on even though that’s going to be tough to pull off due to the same problems AT&T had when they tried to acquire T-Mobile. On the other hand Iliad might make yet another offer in the attempt to acquire T-Mobile, we’ll just have to wait and see what happens. However, if Iliad does make another offer and somehow manages to acquire T-Mobile they’re going to have a hard time generating an additional $2 billion annual operating profit to meet its goals according to analysts. Iliad’s profit is more alike to the profit of some larger U.S. carrier’s like AT&T and Verizon than they are with T-Mobile’s. If we look at revenue-per-employee, Iliad’s average is $195,000 while  T-Mobile’s average comes at $177,000.

These two companies are a lot alike though. They both have a similar strategy when it comes to market plans. Iliad also offers cheap mobile plans and has managed to get the prices down 30% in France and thus take a chunk of profit from other (bigger) carriers over there. Stay tuned, we don’t know how soon we’ll know more but this is definitely not the end of it. As soon as we get more information we’ll let you know.