Iliad isn't quite a household name stateside, but that hasn't stopping the French upstart carrier from making an unsolicited acquisition offer to Un-carrier T-Mobile (NASDAQ:TMUS). Iliad operates under the Free brand, which has been called the "T-Mobile of France" as a disruptive challenger.
On the same day that T-Mobile reported earnings last week, Iliad offered $15 billion to acquire a majority stake in T-Mobile. The company is hoping to buy 57% of T-Mobile at $33 per share, but also values the remaining 43% at $40.50 per share assuming that the theoretically combined company could realize $10 billion of synergies.
T-Mobile shareholders had a lot to be happy about. Not only did the company add 1.5 million customers and put up a healthy profit, but it also has a possible bidding war on the horizon that could drive shares even higher.
Of course, it is speculated that Sprint (NYSE:S) and Softbank have been trying to put together a bid for T-Mobile, despite very public regulatory opposition on the idea. When two of the four largest carriers want to consolidate, it's a hard sell that competition and consumers will come out ahead in the end.
It's worth noting that Iliad does have a regulatory advantage. Since Iliad currently does not operate in the U.S. at all, its proposal may not raise an antitrust issue regarding competition. On the other hand, a Softbank acquisition has already raised regulatory eyebrows since the No. 3 and No. 4 domestic carriers would be merging.
Operationally, Sprint and T-Mobile would go together better. Since they do operate in the same market, there would be greater synergies with employees, as well as all-important spectrum.
The bigger picture
There has been a bit of cross-pollination within the global telecommunications industry in recent years. Japan's Softbank acquired a majority stake in Sprint in 2012. AT&T is interested in expanding into Europe, and was reportedly even considering a massive acquisition of Vodafone. Verizon Communications bucked the trend and bought out Vodafone's 45% stake in Verizon Wireless.
T-Mobile itself only went public last year after the company merged with MetroPCS, and German parent Deutsch Telekom decided to sell part of its stake. The German company retains a majority stake in the Un-carrier (67% as of March), so it still calls the shots.
Deutsch Telekom doesn't think Iliad's $33 per share offer is competitive compared to the Sprint deal, which is reportedly closer to $40 per share. Still, the regulatory differences in the two deals can't be understated, and the Sprint deal is fraught with risks. If Sprint does move forward with a $40 per share offer, regulators could still potentially block the deal. If that happened, $33 per share looks just fine.
This broader trend is only set to continue if either of the purported deals goes through; either Japan's Softbank (via Sprint) could grab a piece of T-Mobile, or France's Iliad could.
Regardless of how these storylines play out, T-Mobile is enjoying every minute of it. First and foremost, the whole reason T-Mobile is attracting suitors in the first place is because its aggressive tactics are proving incredibly successful. Even if no bid emerges, continuing on its current trajectory simply means continued success.
Because of the risks involved in the Sprint deal, there is a reportedly a $2 billion break-up fee if it falls through, up from a previously reported $1 billion break-up fee. If Sprint proposes a deal and it subsequently gets blocked, T-Mobile gets a handsome consolation prize. Sound familiar?
T-Mobile also now has even greater negotiating leverage. T-Mobile shareholders would be clear winners if a bidding war emerges and a deal is completed. Sounds like a win-win-win situation for T-Mobile.