News broke this week that Sprint (NYSE:S) is putting together a formal bid for smaller rival T-Mobile (NASDAQ:TMUS). Speculation has persisted for months, which has triggered public opposition from regulators trying to preemptively warn the two companies. Sprint may offer $40 per share in cash and stock, which values the total deal at around $49 billion including net debt. The equity portion would be valued at $32 billion.
If things fall through, Sprint could be on the hook to pay a $1 billion termination fee. That could indicate that Sprint acknowledges the regulatory risk, and wants to limit its downside. In contrast, AT&T's failed attempt to acquire T-Mobile in 2011 involved a $3 billion cash payout in addition to handing over some AWS spectrum. Depending on how the spectrum is valued, that total bill could have cost AT&T upwards of $6 billion.
Sprint and T-Mobile will argue that they can increase competition in the domestic wireless industry, but regulators will just have to take their word for it. Becoming a massive player may inherently reduce the incentive to compete aggressively, but only time will tell if Sprint and T-Mobile follow through.
In this segment of Tech Teardown, Erin Kennedy discusses Sprint and T-Mobile with Evan Niu, CFA.