Based on the recent flurry of deals in the wireless space, I'm beginning to believe that peer pressure guides more than just teens' wardrobe choices. Finally giving in to the incessant "C'mon, everybody's doing it" mantra, T-Mobile USA parent Deutsche Telekom (NYSE: DT) announced today that it will pony up $1.6 billion in cash to buy regional wireless player SunCom Wireless (NYSE: TPC). The German giant will also assume about $800 million in debt to get SunCom's 1.1 million subscribers across the Southeastern United States and the Caribbean.
T-Mobile offered $27 per share for SunCom, representing a nearly 23% premium to SunCom's closing price of $22 last week. While Dexia SA analyst Rob Goyens estimated the deal to be a pricey 13.1 times 2007 EBITDA, both companies' boards of directors have already approved the merger, based on the estimated $1 billion in saved roaming fees and operating expenses of the combined entity. Should these savings be realized, the premium paid would be worth it.
In the past few months, there has been a rash of bids, mergers, and buyouts in the U.S. wireless market. AT&T (NYSE: T) started by agreeing to swallow Dobson Communications in a $5.1 billion deal late in June. Only a few weeks later, Verizon Wireless, a joint venture between Verizon Communications (NYSE: VZ) and Vodafone (NYSE: VOD), answered with its purchase of Rural Cellular for $2.67 billion. Then, a little more than a week ago, MetroPCS put out a surprise public $5.5 billion bid for competitor Leap Wireless (Nasdaq: LEAP); Leap Wireless has rejected it.
So, let's see. With all these wireless giants already pulling dance partners out onto the floor, who's left still standing by the punch bowl? Oh yeah, Sprint Nextel (NYSE: S). But Sprint is still working hard to stay faithful to its partner Nextel and probably doesn't want to bring a new flame in right now. Besides, the company is already devoted to ramping up its next-generation broadband push with partner Clearwire.
Overall, the SunCom deal is a wise one and should help T-Mobile better compete with larger rivals -- if the merger goes smoothly. In terms of operations, it's always tough to combine two companies that have different legacies. But even with the risks, T-Mobile is better off joining in this dance than standing on the sidelines.
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