Regulators Be Damned, Sprint's Moving Forward With a T-Mobile Bid

News broke this week that Sprint  (NYSE: S  ) is putting together a formal bid for smaller rival T-Mobile  (NYSE: TMUS  ) . Speculation has persisted for months, which has triggered public opposition from regulators trying to preemptively warn the two companies. Sprint may offer $40 per share in cash and stock, which values the total deal at around $49 billion including net debt. The equity portion would be valued at $32 billion. 

If things fall through, Sprint could be on the hook to pay a $1 billion termination fee. That could indicate that Sprint acknowledges the regulatory risk, and wants to limit its downside. In contrast, AT&T's failed attempt to acquire T-Mobile in 2011 involved a $3 billion cash payout in addition to handing over some AWS spectrum. Depending on how the spectrum is valued, that total bill could have cost AT&T upwards of $6 billion.

Sprint and T-Mobile will argue that they can increase competition in the domestic wireless industry, but regulators will just have to take their word for it. Becoming a massive player may inherently reduce the incentive to compete aggressively, but only time will tell if Sprint and T-Mobile follow through. 

In this segment of Tech Teardown, Erin Kennedy discusses Sprint and T-Mobile with Evan Niu, CFA.

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  • Report this Comment On June 06, 2014, at 6:50 PM, lkhrt wrote:

    As I'm driving to work this morning, I'm listening to TMobile commercial. $40 bucks / month, we'll pay the switch over ETF's blah blah blah. Ok great, lets do the math. How much does it cost them to get a new subscriber this way? I'd guess anywhere from 600-800 dollars per subscriber that switches. At that rate it would take them 15 to 20 months to break even on that new sub. They can't do that forever, and neither can Sprint (I'm assuming they are in the same boat). Meanwhile T and VZ are getting fatter and fatter. That's why these two must merge.

  • Report this Comment On June 08, 2014, at 7:27 AM, PaulApp wrote:

    Someone only hears blah blah and forgot to think about the fine print. You have to trade in your phone and buy new phone from Tmobile store. And not just any phone, it most be from their approved list. You might get some credit back for your old phone, but you will have to ultimately buy new phone.

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Evan Niu

Evan is a Senior Technology Specialist at The Motley Fool. He was previously a Senior Trading Specialist at a major discount broker. Evan graduated from the University of Texas at Austin, and is a CFA charterholder.

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8/28/2015 4:00 PM
S $5.19 Up +0.12 +2.37%
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