Japanese telecom SoftBank (NASDAQOTH:SFTBF) may have found a way to merge Sprint (NYSE:S) with T-Mobile US (NASDAQ:TMUS), creating a third gargantuan American network to match economies of scale with Verizon Communications (NYSE:VZ) and AT&T (NYSE:T). But it's a last-ditch tactic that must feel like pulling teeth for SoftBank CEO Masayoshi Son. The best way to push through this long-awaited network merger could be to cede control over the combined company to T-Mobile's leaders.
Would Son truly be interested in a deal on these terms, and what would SoftBank stand to gain from a merger where the company loses control over its largest American asset?
Let's have a closer look.
What's the big idea?
According to a Reuters report citing unnamed insider sources, SoftBank is prepared to let go of its controlling Sprint stake if that's the only way forward to a T-Mobile merger. The companies have come close to a formal merger agreement once before, but backed down from that idea in the summer of 2014 due to pressure from American regulators.
Since that botched attempt, Sprint shares have largely follwed the broader market to trade 20% higher while T-Mobile nearly doubled at a 91% gain. The plan three years ago was to have Sprint buying the significantly smaller T-Mobile at a reasonably affordable price, but market forces have changed that equation dramatically.
These days, T-Mobile sports an enterprise value of $77.7 billion while Sprint stops at $68.3 billion. Moreover, T-Mobile has been growing its subscriber counts quickly and reliably, while Sprint often delivered negative growth instead. T-Mobile has passed Sprint to become the third-largest American network, sporting 71.5 million total customers at the end of 2016 versus Sprint's 59.5 million.
So now it makes more sense to have T-Mobile taking the lead, at least from a purely financial point of view. It's the larger business today, wielding a larger market value and more subscribers. In a strategic light, it also seems appropriate to let the company on a multiyear winning streak continue doing what it's doing. Simply folding Sprint's network infrastructure, subscriber list, and wireless spectrum assets into T-Mobile's successful operations looks like the way to go.
What's wrong with this picture?
But things are never quite that simple in the real world.
This time, you have to consider Masayoshi Son's ambitious plans and larger-than-life ego, urging him to build a global empire without equal. Taking control of Sprint was a step in that direction, and having the company take over T-Mobile would have been another positive leap. But handing over his prized Sprint asset to another company would be a large step backward for Son's visions of global success, making it a bitter pill to swallow.
If Reuters' sources are correct, T-Mobile must have come up with some way to mitigate that deal-breaking problem. He might be given the option of buying a larger stake in the post-merger business at a later date, perhaps triggered by the company meeting an unknown set of business goals. Maybe SoftBank would be promised a larger presence on the new board of directors, or T-Mobile could simply cough up a larger buyout premium to make this deal worth Son's while.
Any or all of these deal-pushing details might show up, and the companies could come up with many other ways to placate Masayoshi Son. Or maybe I'm overthinking this whole thing, if Son is ready to simply shrug off his North American ambitions for the time being.
Whatever the case, we'll probably find out soon enough. Rumored deals reaching this stage tend to shake out quickly, whether it's done by the companies debunking the early reports or by moving to get something done before the rumor mill goes entirely bonkers.