T-Mobile US and Sprint have agreed to merge in an all-share deal, creating a new major player in the US mobile market to rival Verizon and AT&T. Under the agreed terms, Deutsche Telekom will own 42 percent of the merged group, down from 62 percent in T-Mobile, and SoftBank Group will have a 27 percent stake, down from nearly 85 percent in Sprint. The group will be called T-Mobile, with the remainder of its shares remaining listed on the stock market and John Legere continuing as CEO.
Sprint shareholders will receive 0.10256 T-Mobile shares for each Sprint share, or the equivalent of 9.75 Sprint shares for each T-Mobile US share. Based on the last closing share prices, this values Sprint at USD 59 billion and the combined company at USD 146 billion. The companies also expect over USD 6 billion in annual synergies from the merger by 2024, thanks to savings on spectrum, operating costs and capital investment.
The board will consist of 14 directors: nine nominated by Deutsche Telekom, including the chairman Tim Hoettges, and four nominated by SoftBank Group, including its CEO Masayoshi Son and Sprint CEO Marcelo Claure. Legere will also serve as a director.
In addition, Softbank and Deutsche Telekom will sign a voting rights agreement, which Deutsche Telekom said will give it majority control of the company based on shares held by Softbank. This gives Deutsche Telekom direct and indirect voting rights for a total of 69 percent of T-Mobile shares, and the German operator will consolidate the new group. DT said it expects the new company to add to earnings within three years.
No decision on which of the group's brands will continue will be taken until after the deal is completed. These include T-Mobile and Sprint, as well as the prepaid brands MetroPCS, Boost Mobile and Virgin Mobile.
Self-financing more investment
On a pro forma basis, the group will have annual service revenue of USD 53-57 billion and an adjusted EBITDA margin of 40-42 percent, with a longer-term target of 54-57 percent. With net debt estimated at USD 63-65 billion, T-Mobile said it will have a fully funded business plan with significant liquidity at close. The new T-Mobile also pledged to invest up to USD 40 billion in its new network and business in the first three years, equal to 46 percent more than T-Mobile and Sprint spent combined in the past three years.
The companies aim to complete the deal by the first half of 2019, pending shareholder approval. This will depend also on receiving regulatory approvals. A previous attempt to merge three years ago was abandoned in the face of opposition from competition regulators. Deutsche Telekom has agreed a break-up fee of USD 600 million for Sprint if the deal doesn't go through.
The increased capex, as well as plans to expand rural broadband and stores and create new services for businesses and the public sector are among the promises made in the merger announcement to help win over regulators. The merged group said it also should employ more staff than the two separate companies, due to the plans to expand retail, customer service and network coverage in rural areas.
