NSR: Sprint, T-Mobile’s Scrapped Merger Is A $50B “Failure”

October 31, 2017 - Written By Dominik Bosnjak

A scenario in which T-Mobile and Sprint walk away from their intentions to merge after months of negotiations would be “a failure” on the part of both companies’ management and could potentially see them lose out on approximately $50 billion in synergies, according to a note from New Street Research first picked up by FierceWireless. Consolidation talks between the third and fourth largest mobile service provider in the country have broken down at some point last week, according to industry sources, with Sprint parent SoftBank supposedly deciding to propose scrapping the negotiations yesterday.

While it described the possibility as unlikely, NSR didn’t completely dismiss the idea of SoftBank’s latest move being a bluff meant to provide the company with more leverage in negotiations in which it doesn’t have the upper hand, with T-Mobile having a significantly higher market cap than Sprint and Deutsche Telekom not being interested in selling its U.S. subsidiary like it was circa 2014 when the Japanese conglomerate originally pitched the idea of a merger to the German telecom giant. The market analytics company said that regardless of the differences in opinion between the two that may have arisen when asset valuations became the topic of discussion, the potential for the deal to add approximately $50 billion to the value of the combined entity should by itself have been enough reason for them to reach an agreement.

Regardless of the accuracy of that estimate, recent reports indicate that asset valuation wasn’t an issue on either side, with the two supposedly agreeing on an all-stock deal that would still see SoftBank receive a premium for Sprint compared to how its subsidiary’s shares are currently trading. Instead, the talks are said to have broken down over ownership structure issues, with the Japanese company being unwilling to yield full control over the hypothetical combined entity to Deutsche Telekom. The future of the widely reported deal still remains uncertain as neither party has yet issued a comment on the matter in an official capacity, though basic tie-up conditions have reportedly already been agreed upon and the announcement of the merger proposal should have arrived by mid-November, people familiar with the matter said several days before Sprint, T-Mobile, and their parent companies had their supposed falling out.