Please ensure Javascript is enabled for purposes of website accessibility

T-Mobile and Sprint Tweak Their Deal

By Evan Niu, CFA - Feb 22, 2020 at 2:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Public Sprint shareholders won't be affected.

As expected, T-Mobile (TMUS -0.33%) and Sprint (S) have renegotiated their blockbuster megamerger that was approved by a federal judge earlier this month. While there are many valid criticisms of the court's decision, New York Attorney General Letitia James, who had been spearheading the multistate effort to block the deal on anticompetitive grounds, has opted not to appeal the case.

Over the two years that have passed since the merger was initially proposed, Sprint's fundamental business deteriorated considerably as the company bled out subscribers and the balance sheet weakened. Here are the new terms that the companies have agreed upon.

John Legere and Marcelo Claude sitting next to T-Mobile and Sprint logos

Sprint executive chairman Marcelo Claure and T-Mobile CEO John Legere. Image source: T-Mobile.

Softbank takes a hit

The original terms of the all-stock transaction included a fixed exchange ratio of 9.75 Sprint shares for every T-Mobile share. The amended terms will change that exchange ratio to 11 Sprint shares for every T-Mobile share (essentially devaluing Sprint shares), but with a catch: Sprint majority owner SoftBank will surrender 48.8 million T-Mobile shares to the new company once the deal closes, resulting in an effective exchange ratio of 11.31 Sprint shares for every T-Mobile share for the Japanese tech giant.

Importantly, the tweak has no impact on all other Sprint shareholders, as they will still receive the equivalent of the original exchange ratio of 9.75 Sprint shares for every T-Mobile share. In fact, public shareholders will come out slightly ahead, owning a relatively larger stake in the combined company. T-Mobile majority owner Deutsche Telekom will also end up with more ownership.

Shareholder

Original

Amended

Deutsche Telekom

42%

43%

SoftBank

27%

24%

Public shareholders

31%

33%

Data source: T-Mobile.

T-Mobile and Softbank note that the amendments do not impact any of the prior estimates around expected synergies, long-term profitability, or cash flow. For reference, T-Mobile and Sprint initially expected the deal to create over $6 billion in run-rate cost synergies.

New T-Mobile will reissue those 48.8 million surrendered shares to SoftBank if the combined company's stock is able to achieve certain price milestones within a specified measurement period. Details around those milestones have not yet been disclosed.

Investors seem happy with the deal. While Sprint shares had been trading at a discount relative to the exchange ratio based on an expected renegotiation, the stock is now even trading at a premium to the exchange ratio that applies to public shareholders. As of this writing, Sprint shares are trading at $10.02 while T-Mobile shares are priced at $98.41, translating into an exchange ratio of approximately 9.8. Shareholders are relieved that Softbank is the one taking the hit here instead of them.

"This is going to be epic!" outgoing T-Mobile CEO John Legere said in a statement. The deal is expected to close as early as April Fools' Day.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

T-Mobile US, Inc. Stock Quote
T-Mobile US, Inc.
TMUS
$146.37 (-0.33%) $0.49
Sprint Corporation Stock Quote
Sprint Corporation
S

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
397%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.