Third Points opens a position in T-Mobile
Third Point said in its 4Q investor letter that it had an opportunity to establish a position in T-Mobile (TMUS) in November when the company conducted a secondary offering at $25. The offering represented a favorable relative valuation versus peers, enhanced by recently improved relative operating performance and an attractive EBITDA growth trajectory.
Third Point expects to benefit from a potential merger of T-Mobile with Sprint Corp. (S) or Dish Network Corp. (DISH). The letter said T-Mobile’s shares are up, as it’s of strategic interest for Sprint Corp and potentially DISH. The letter added that analysts have had a mixed response on the prospects of a merger with Sprint, “indicating an unwillingness on the part of the DoJ and FCC to approve consolidation while acknowledging the significant financial and scale disadvantages Sprint and T-Mobile face and the inevitability of a combination.”
Third Point also owns stake in SoftBank Corp. (9984), the Japanese wireless carrier that owns Sprint. The letter said that initial analyst estimates in the U.S. indicated Softbank is set to capture 60% to 70% of the $20 billion to $30 billion NPV of synergies if the deal materializes. This would imply $10 to $15 per share of upside to Third Point’s Softbank valuation. Softbank is led by its founder and CEO, Masayoshi Son, whom Loeb considers “as the ultimate maverick—one who would likely look to convert substantial synergies into market share gains enabled by amplifying the innovative business practices T-Mobile’s dynamic management team has imported to the U.S. market (apparently from Softbank in Japan).”
Loeb further writes that if a merger doesn’t take place, Sprint and T-Mobile will continue losing market share and might become acquisition targets of market leaders AT&T (T) and Verizon (VZ). According to Third Point, “While the environment for legitimate business combinations faces potentially unfriendly regulatory dynamics, the combination of Sprint and T-Mobile creates the only real counterbalance to a decade-long market and profit share grab by the industry’s two largest players.”
You can view the full letter here.
Recent news reports stated that Softbank Corp is in direct talks with Deutsche Telekom as it seeks to merge its Sprint Corp. unit with the German company’s T-Mobile. Softbank Corp. owns a controlling stake in Sprint, while Deutsche Telekom AG owns about 67% of T-Mobile. Reports last month indicated that T-Mobile, which is the number-four U.S. mobile provider, has managed to capture more market share by breaking away from the traditional phone subsidy and contract pricing models. The company added 648,000 net subscribers in 3Q 2013, more than AT&T, which added 363,000. Competition in the space has heated up, with market leaders AT&T and Verizon facing pressure from T-Mobile’s customer acquiring tactics.
For more details on Third Point’s 3Q 2013 positions, please click here.