Investor Alert

April 30, 2018, 2:28 a.m. EDT

Sprint, T-Mobile agree to merge in $26 bln deal

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By Drew FitzGerald

The boards of Sprint Corp. and T-Mobile US Inc. struck an all-stock $26 billion merger that, if allowed by antitrust enforcers, would leave the U.S. wireless market dominated by three national players.

It is the third time in recent years that the two rivals have attempted the combination.

New technology, stiff competition from wireless rivals and an aging cellphone sector keep driving Sprint and T-Mobile into each other's arms. Both companies hope to squeeze billions in savings by uniting operations despite their owners' different management styles and a tough regulatory environment.

The all-stock deal would combine Sprint, which has a market value of $26 billion, with T-Mobile, which has a market value of $55 billion, based on Friday's closing prices. The two companies also have about $60 billion of combined debt.

Under the terms of the deal, T-Mobile will exchange 9.75 Sprint shares for each T-Mobile share. T-Mobile parent Deutsche Telekom will own 42% of the combined company and Sprint parent SoftBank Group will own 27%. The remaining 31% will be held by the public.

Deutsche Telekom would also control voting rights over 69% of the new company and appoint nine of its 14 directors. The companies said they hope to close the deal in the first half of 2019.

Joining forces would create a wireless provider with nearly 100 million cellphone customers, second only in the U.S. to Verizon Communications Inc. The combined company, which would be called T-Mobile, would be run by T-Mobile CEO John Legere. .

The companies will still face an uphill battle in Washington. The Republican administration hasn't been consistently receptive to big corporate mergers. The Justice Department sued AT&T Inc. in November to block its $85 billion takeover of Time Warner Inc., and lawyers for the two sides are making closing arguments on Monday.

In a reflection of the risk that authorities would block an attempt at combining the nation's third- and fourth-largest wireless carriers, the Sprint-T-Mobile deal isn't expected to include a break-up fee that one side would owe should regulators block a proposed tie-up, the people familiar with the matter said.

The government also has a past victory under its belt: It forced AT&T Inc. and T-Mobile to abandon a planned tie-up in 2011.

In 2014, the then head of the Federal Communications Commission made clear that having four national providers was necessary to ensure competition and lower prices for consumers. That forced Sprint and T-Mobile to abandon their plans to combine. The current FCC chairman, Republican Ajit Pai, hasn't drawn the same line about the number of national providers.

"This isn't a case of going from 4 to 3 wireless companies -- there are now at least 7 or 8 big competitors in this converging market," Mr. Legere said on Sunday. The companies also vowed to boost hiring and spending in the U.S. after the transaction.

Sprint and T-Mobile executives could make the case that times have changed. Investments in 5G infrastructure could blur the lines between cellphone provider, cable company and technology firm. Even using current technologies, Comcast Corp. has rolled out low-cost wireless service to its cable customers that rides on Verizon's network.

Dish Network Corp., led by its chairman Charlie Ergen, meanwhile is building a bare-bones wireless network that could be used to link autonomous cars, drones and other machines aside from cellphones. Companies could use that project to argue there are more than four nationwide wireless companies, though it would be a harder sell if Dish avoids directly competing with Sprint and T-Mobile.

"Charlie alone can change the prospects of this deal," said Blair Levin, a regulatory analyst for New Street Research LLC.

Last year, Sprint and T-Mobile discussed a deal but the talks collapsed in November after they failed to agree on who would control the combined company, people familiar with the matter said. Japanese technology giant SoftBank controls 83% of Sprint. Germany's Deutsche Telekom owns 62% of T-Mobile.

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