The $26 billion all-stock deal between Sprint (NYSE:S) and T-Mobile (NASDAQ:TMUS) puts T-Mobile firmly in charge -- an idea that was untenable just six months ago. But with even greater scale and resources at its disposal, the new company is certain to shake up the wireless industry.
In this segment from Industry Focus, the cast dives into the deal terms for shareholders before offering a glimpse behind the curtains of the "New T-Mobile".
A full transcript follows the video.
This video was recorded on May 1, 2018.
Vincent Shen: There's an actual deal on the table to dissect now. This was another instance where there were a lot of rumors. So they've been swirling since early April that the two companies were back at the negotiating table, and then they made their official announcement on April 29th, this past Sunday.
It's an all-stock deal with Sprint shareholders, for each share that they own, getting 0.10256 shares of T-Mobile. Using the closing prices from last Friday, Sprint's stock was trading at $6.50 per share, while the exchange for T-Mobile stock was valued about $6.62. That might seem like a really narrow range with Sprint shareholders getting not even a 2% buyout premium. But as I mentioned, because these discussions have essentially been in the headlines since April 10th, if you look prior to that news, Sprint's stock was trading at only $5.14 per share. So based on that price, the premium is actually close to 30%, much more robust. It's better, but it's not much consolation for Sprint investors, because the stock was trading at almost $9 this time last year.
Dan Kline: It's an all-stock deal, so it's not really a buyout of the stockholders. It's more selling them on the promise of the new company.
Shen: Sure. So at that $6.62 exchange value, Sprint comes out with a value of about $26.5 billion. You add the company's $33 billion of net debt, total enterprise value for the company is almost $60 billion.
Let's talk a little bit more about the combined entity now, because it's pretty fascinating. The "New T-Mobile", as they refer to it in the press release, will keep the T-Mobile name and also keep the TMUS ticker. The enterprise value will be close to $150 billion, $75 billion of annual revenue, around 100 million subscribers, I believe, and 200,000 employees, and a very close competitor now to AT&T and Verizon.
Kline: That's the big thing. You could say T-Mobile was No. 3. You could also say that RC Cola is the No. 3 cola in the United States. And it isn't that direct a comparison, because obviously T-Mobile was a significant player, and RC Cola isn't.
Shen: And causing a lot of pain for the bigger two players.
Kline: Sure. But this gives them the real economy of scale to, it's arguable whether they'll be No. 2 or No. 3 --
Shen: It's close enough, though.
Kline: -- it depends on how you look at some of the wholesale, the non-branded customers, but they're on equal footing, and that makes everything easier.
Shen: Yeah. The company headquarters will be in Bellevue, Washington, with a secondary headquarters in Overland, Kansas. T-Mobile CEO John Legere and his COO Mike Sievert, they'll keep their positions at the new company, while Sprint CEO Marcelo Claure and Masayoshi Son will take seats on the board of directors.
As stand-alone entities, Deutsche Telekom controlled 63% of T-Mobile, and SoftBank (OTC:SFTB.Y) had an 83% stake in Sprint. For the new company, Deutsche Telekom will hold a 42% stake, and SoftBank will control 27%. The remaining 31% will be in the public's hands. This goes back to that loss of control and how Deutsche Telekom will be holding the cards here.
Kline: You mentioned the management. The rest of the management positions are "going to be filled as needed from both companies." The reality is, T-Mobile executives are going to win that fight.
Kline: But because the two companies have to operate separately for what could be a very long time --
Shen: Assuming the deal closes.
Kline: Right. The last thing you want to do is name all these positions and tell the Sprint CTO, "Hey, you can stay, but you're going to be No. 2 in your department," when they need him for the next period of time. So there will likely be retention bonuses and a lot to come out, specifically with Sprint management, that looks likely to be at least knocked down a peg, if not eliminated.
Shen: Also, in terms of these different leaders at the companies, I'm curious if you've seen anything about why Masayoshi Son had a change of heart from just November to six months later, now, finally agreeing to this deal.
Kline: The cost of a 5G network.
Shen: Ah, OK.
Kline: Really, when you look into it, as much as they valued all of the assets they have in terms of spectrum, when you actually break it down on how many points you need to make this work on a nationwide basis, it was daunting and impossible, really.
Shen: Simply too costly.
Kline: $1.5 trillion, something like that, which, any of these companies on their own, without existing assets of spectrum and bandwidth and things that would sell for much more if you had to buy them on the open market now, it just wasn't going to work.