Rise in M&A activity
There seems to be an increase in M&A (merger and acquisitions) activity in the US (SPY) telecom (telecommunications) sector. Merger discussions between Sprint (S) and T-Mobile (TMUS) refuse to die down. According to a Bloomberg report on October 19, 2017, merger negotiations between Sprint and T-Mobile most likely won’t be concluded in time for 3Q17 earnings. The report said an announcement, if it comes, could be delayed until mid- or late November. The agreement isn’t expected to have a traditional breakup fee, which lowers the risk in case the merger is rejected by US regulators.
Earlier, Sprint’s management indicated that a T-Mobile tie-up could offer enormous synergies. However, analysts’ consensus estimate suggests $30.0 billion in NPV (Net Present Value) synergies. A T-Mobile tie-up could also offer expansion in scale. The combined company would be almost the size of Verizon (VZ) and AT&T (T), which continue to fight for customers.
History of the Sprint–T-Mobile merger idea
This is the second attempt for T-Mobile and Sprint to merge. A similar deal failed to materialize in 2014 due to regulatory hurdles. After that, both wireless companies took different roads to expand their individual customer bases. However, Sprint and T-Mobile have a common target: to compete with industry giants Verizon and AT&T. In 2Q17, T-Mobile gained 786,000 postpaid phone net subscribers, and Sprint gained 88,000.