T-Mobile (NYSE:TMUS) and Sprint (NYSE:S) are in talks to reprice their pending merger deal. In April 2018, T-Mobile announced an all-stock deal valued at $26.5 billion to acquire Sprint. Currently, the deal is worth $40 billion due to recent share price gains in T-Mobile stock. T-Mobile is seeking to lower the merger deal price. Sprint is struggling to generate profits. However, Wall Street thinks that T-Mobile has a limited ability to reduce the merger deal price. Cowen analysts believe that the merger deal price could be cut by around 9%.
T-Mobile and Sprint to renegotiate merger terms
According to a Reuters report, “T-Mobile has plenty of arguments it can deploy in a renegotiation with Sprint. The latter’s market share in subscribing phone customers is down from 12.4% at the start of 2018 to 11.8% in the third quarter of 2019.” Sprint has been losing wireless subscribers over the last few quarters. The company is the only major US mobile operator to generate profits. In addition, Sprint’s net debt increased from $32.9 billion as of March 31, 2019, to $34.1 billion as of December 31, 2019.
It would be difficult for Sprint’s parent company SoftBank to walk away without a deal. The Reuters report also said, “The Japanese conglomerate is struggling to raise money from investors for its second $100 billion Vision Fund, as high-profile bets on start-ups such as WeWork backfired.”
In comparison, T-Mobile’s parent company Deutsche Telekom also wants to close the merger deal to compete with larger rivals like AT&T (NYSE:T).
Federal court approved the merger
More than a dozen state attorneys general filed a lawsuit to stop the transaction on antitrust grounds. Last week, U.S. Federal Judge Victor Marrero allowed T-Mobile to merge with Sprint.
The FCC and the Department of Justice approved the merger deal last year. Antitrust regulators approved the deal after the combined company agreed to divest some wireless assets to Dish Network (NASDAQ:DISH) for $5 billion. Dish will likely replace Sprint in the wireless industry by creating its own mobile 5G network.
Over the last few quarters, T-Mobile has led the US wireless industry in subscriber and revenue growth. In the fourth quarter, the company posted total revenues of $11.88 billion, which implies a YoY (year-over-year) rise of 3.8%. The company’s sales beat analysts’ consensus estimate of $11.83 billion.
T-Mobile posted a non-GAAP EPS of $0.87, which increased by 16% YoY and beat analysts’ consensus estimate of $0.83. The company reported 1.0 million postpaid phone customer net additions in the fourth quarter. T-Mobile has led the US wireless industry in postpaid phone subscriber net additions in the last 24 quarters. The company also reported a fourth-quarter postpaid phone churn rate of 1.01%.
In comparison, Sprint’s wireless service revenue is falling due to subscriber losses over the last few quarters. The company didn’t have an impressive performance in the December quarter. Sprint’s sales and earnings were below analysts’ expectations. The company reported an EPS of -$0.08 on revenue of $8.08 billion.
In the December quarter, Sprint posted a wireless service revenue of $5.2 billion, which implies a YoY decline of 4.7%. To add to the pain, the company reported net losses of 115,000 postpaid phone customers. In the US wireless industry, Sprint’s churn rate is the highest. The company reported a postpaid phone churn rate of 2.06%.
T-Mobile and Sprint’s stock performance
T-Mobile stock has risen 27.4% YTD (year-to-date) through Tuesday. During this period, AT&T and Sprint have returned -2.1% and 76.0%, respectively.
On Tuesday, T-Mobile stock rose 3.5% and closed at $99.88 with a market cap of $85.6 billion. The stock is trading 46.5% above its 52-week low of $68.16. Meanwhile, T-Mobile stock is trading 0.1% below its 52-week high of $100.02 per share. The stock reached a 52-week high on Tuesday after the US district court judge approved the T-Mobile and Sprint merger deal last week. Analysts have a 12-month mean target price of $94.84 for T-Mobile stock, which is below the company’s last closing price of $99.88. On Tuesday, UBS increased its target price on T-Mobile stock from $96 to $112.
On Tuesday, AT&T stock rose by 0.03% and closed at $38.26. Meanwhile, Sprint stock rose by 5.5% and closed at $9.17.
Read T-Mobile and Sprint Merger Deal Could Be a Winner and T-Mobile versus Sprint: Which Stock Should Investors Buy? to learn more. You can also read Dish Wireless Needs Partners after Escaping T-Mobile Limit.