A Merger May Propel T-Mobile Stock Over $90: Analyst

September 26, 2017 - Written By Dominik Bosnjak

A merger with Sprint could bring the shares of T-Mobile north of $90, Mike McCormack of Jefferies Equity Research Americas estimated as part of his Tuesday research note. The stock of the third largest wireless carrier in the United States is presently trading at over $63, up almost 35 percent year-on-year, and T-Mobile is expected to increase its valuation even further by a significant degree if it manages to agree on a consolidation with Sprint on its own terms. While the two have been unofficially exploring the idea of a merger for many years now, SoftBank’s initial approach was essentially shot down by the former Obama administration in its infancy and the current state of affairs would make T-Mobile’s parent Deutsche Telekom more likely to be the buyer instead of the selling party in a hypothetical tie-in scenario.

The German telecom giant supposedly proposed a stock-for-stock deal to Sprint which its Japanese parent may be close to accepting, consequently yielding some of its voting rights in a merged entity in exchange for making the deal happen in accordance with the current market value. Such a turn of events would presumably leave Deutsche Telekom with control of the consolidated company and further propel the current value of T-Mobile stock given that additional leverage, Mr. McCormack believes, citing numerous analyses ran by Jefferies Equity Research Americas. Like many other industry watchers, Mr. McCormack believes that the biggest obstacle to a merger between Sprint and T-Mobile are regulators, i.e. numerous antitrust reviews such a proposal would prompt. The transaction would at the very least have to be approved by the Federal Communications Commission, Federal Trade Commission, and the Department of Justice, all three of which could require significant concessions from the two mobile service providers or refuse to sanction the deal altogether.

Some more recent reports indicate that the current political climate in the United States could see the deal be approved sooner than expected and that both T-Mobile and Sprint should be pushing for it right now at all costs, with other industry watchers speculating that the likes of Comcast and Dish could play a major role in any competition reviews of such a proposal by demanding concessions from both firms under the threat of antitrust lawsuits. Mr. McCormack acknowledged the potential role of wireless newcomers in that scenario but didn’t go as far as to predict that their approach to the situation would be so aggressive.