Exclusive: T-Mobile, Sprint aim to announce merger
without asset divestitures - sources
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[October 16, 2017]
By Liana B. Baker and Anjali Athavaley
(Reuters) - T-Mobile U.S. Inc and Sprint
Corp plan to announce a merger agreement without any immediate asset
sales, as they seek to preserve as much of their spectrum holdings and
cost synergies as they can before regulators ask for concessions,
according to people familiar with the matter.
While it is common for companies not to unveil divestitures during
merger announcements, T-Mobile's and Sprint's approach shows that the
companies plan to enter what could be challenging negotiations with U.S.
antitrust and telecommunications regulators without having made prior
Reuters reported last week that some of the U.S. Justice Department's
antitrust staff were skeptical about the deal, which would combine the
third and fourth largest U.S. wireless carriers. However, regulators can
only begin reviewing a corporate merger once it has been agreed to and
T-Mobile and Sprint are preparing a negotiating strategy to tackle
demands from regulators regarding asset sales, including the divestment
of some of their spectrum licenses after their deal is announced, the
The companies' announcement of a merger agreement, currently expected to
come either in late October or early November, will focus on the
potential benefits of the deal for U.S. consumers, including the
advancement of next-generation 5G wireless technology, which requires
considerable investment, the sources added.
The sources asked not to be identified because the deliberations are
confidential. T-Mobile and Sprint declined to comment.
"It is better for Sprint and T-Mobile to listen and learn the concerns
of regulators first, and see whether there is anything that can be done
to address those concerns," MoffettNathanson research analyst Craig
A combination of T-mobile and Sprint would create a business with more
than 130 million U.S. subscribers, just behind Verizon Communications
Inc <VZ.N> and AT&T Inc <T.N>.
Companies often chose not to make any pre-emptive announcements on
divestitures when they announce mergers. For example, when U.S. health
insurers Anthem Inc <ANTM.N> and Aetna Inc <AET.N> separately announced
deals two years ago to acquire peers Cigna Corp <CI.N> and Humana Inc <HUM.N>,
they did not reveal which assets they would be willing to divest. U.S.
federal judges shot down both mergers on antitrust grounds earlier this
Some media and telecommunications deals in recent years have been
announced with divestitures, such as U.S. cable operator Comcast Corp's
<CMCSA.O> proposed takeover of Time Warner Cable in 2014, which was
later called off after regulatory pushback. When U.S. TV station owner
Sinclair Broadcast Group <SBGI.O> announced its acquisition of peer
Tribune Media Co <TRCO.N> in May, it said it might sell certain stations
to comply with regulators.
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Smartphones with the
logos of T-Mobile and Sprint are seen in this illustration taken
September 19, 2017. REUTERS/Dado Ruvic/Illustration/File Photo
Companies often also choose to place caps in their merger agreements on the size
of divestitures they would be willing to accept in their negotiations with
regulators. T-Mobile and Sprint have not yet agreed to include such a cap in
their merger agreement, though it is possible they will do so, one of the
UBS research analyst John Hodulik said in a research note earlier this month
that the U.S. Federal Communications Commission will likely force T-Mobile and
Sprint to make some divestitures of spectrum, since the combined company would
have the most airwaves in its sector with more than 300 MHz, putting it ahead of
Verizon's and AT&T's holdings.
T-Mobile spent $8 billion in a government auction of airwaves earlier this year.
Sprint stayed out of the auction, touting its holdings of high-band spectrum,
which it says can move large volumes of information at high speeds.
Having access to a lot of spectrum is particularly important for the 5G wireless
offerings that AT&T and Verizon hope to launch to better compete with high-speed
Internet services from cable companies.
T-Mobile and Sprint believe that the U.S. antitrust enforcement environment has
become more favorable since the companies abandoned their previous effort to
combine in 2014 amid regulatory concerns, according to the sources.
The two companies have not yet introduced a breakup fee in their merger
negotiations that would compensate one side if regulators reject the deal,
though it is possible one will be agreed to by the time the deal is signed, the
Investors have been waiting for the deal to be announced since Reuters first
reported last month that T-Mobile and Sprint were close to agreeing tentative
Sprint shareholders are expected to receive little to no premium in the deal,
meaning that Japan's SoftBank Group Corp <9984.T>, which controls Sprint, and
other Sprint shareholders will own around or more than 40 percent of the
combined company. T-Mobile majority owner Deutsche Telekom AG <DTEGn.DE> and the
rest of the T-Mobile shareholders will own the remainder.
It is still possible that the negotiations between T-Mobile and Sprint will
conclude without a deal, the sources have cautioned.
(Reporting by Liana B. Baker in San Francisco and Anjali Athavaley in New York;
Additional reporting by Diane Bartz in Washington; Editing by Jonathan Oatis)
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