Shares of Sprint (NYSE:S) plunged as much as 14.4% lower on Monday morning after the company's merger talks with T-Mobile USA (NASDAQ:TMUS) officially ended without an agreement. T-Mobile shares fell as much as 6% on the news.
Both companies issued official statements to confirm the end of their deal talks. Both Sprint CEO Marcelo Claure and T-Mobile CEO John Legere said that their companies would be better off alone, pointing to disagreements about which business would bring more value to the table. Separately, Japanese telecom SoftBank Group (NASDAQOTH:SFTBY) announced that it now plans to increase its 83% ownership stake in Sprint. SoftBank shares opened 6.1% lower Monday in response to these announcements.
For what it's worth, SoftBank's maximum stake in Sprint is capped at 85%; buying any more would trigger a regulatory rule requiring the company to buy back all of Sprint's shares and complete a full merger. The companies agreed not to trigger this provision when they joined forces in 2013. So mathematically speaking, SoftBank's new Sprint investment has to land below $580 million.
As for T-Mobile, the company now has to look elsewhere for a spectrum-rich deal of some sort. Pivotal Research analyst Jeffrey Wlodarczak thinks that's the obvious move would be for it to buy DISH Network (NASDAQ:DISH), or at least its unused wireless spectrum licenses -- an idea that helped drive DISH shares as much as 7.1% higher Monday, while Verizon Communications (NYSE:VZ) investors took an up to 5.4% haircut. If T-Mobile decided to pursue DISH's spectrum in any way, the theory goes, Verizon would need to protect its dominant spectrum position by starting a bidding war over DISH.
I would argue that T-Mobile has several paths to choose from, most of which don't involve a DISH deal. The company was an active buyer in recent spectrum auctions, and is also lobbying the FCC for more of these open-market bidding opportunities. And I'm pretty sure DISH has its own plans for its valuable spectrum portfolio, either kicking off an in-house mobile service, or a ground-based video service built around the same wireless licenses.
We'll see where T-Mobile and DISH go next as the dream of a T-Sprint merger fades. Either way, these are interesting times in the American wireless market, and Verizon might have preferred to see a peaceful consolidation process here.