T-Mobile and Sprint Amend Merger Terms, Hurdles Remain

On Thursday, T-Mobile announced a revised definitive merger agreement to acquire Sprint. The new agreement will reduce SoftBank’s stake.

Ambrish Shah - Author

Feb. 21 2020, Published 9:26 a.m. ET

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On Thursday, T-Mobile (NYSE:TMUS) announced a revised definitive merger agreement to acquire Sprint (NYSE:S). The new merger agreement will reduce the stake of Sprint’s parent SoftBank. Notably, there aren’t any value changes to Sprint shareholders. The new agreement ends the debate about a new T-Mobile and Sprint merger deal price.

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T-Mobile and Sprint merger deal revised

Following the closure of the deal, T-Mobile’s parent company Deutsche Telekom and SoftBank will likely hold 43% and 24% of the combined entity, respectively. Under the previous terms, Deutsche Telekom and SoftBank were expected to hold 42% and 27% of the combined entity, respectively.

According to a CNBC report, “Common shareholders won’t see a change in the exchange ratio, which is 9.75 Sprint shares for 1 T-Mobile share. SoftBank, which owns the more than 80% of Sprint, will see an exchange ratio of 11 Sprint shares for each T-Mobile share.” The report also said, “SoftBank agreed to surrender about 48.8 million T-Mobile shares it will gain in the merger after the transaction is complete.”

However, T-Mobile would re-issue the surrendered shares if new T-Mobile stock hits a price of $150 per share between 2022 and 2025. SoftBank agreed for a lower ownership stake. Sprint is struggling to generate profits and survive on a standalone basis.

SoftBank and Deutsche Telekom agreed not to revise the common shareholder exchange ratio. Any change required a shareholder vote, which would delay the closure of the deal.

More merger hurdles

In April 2018, T-Mobile and Sprint announced a $26.5 billion merger deal. The two wireless carriers are still waiting to close the merger deal. Last year, a number of state attorneys general sued to stop the combination due to antitrust concerns. However, U.S. Federal Judge Victor Marrero dismissed the court challenge filed by the states. Earlier this week, New York Attorney General Letitia James dropped the state’s fight against the T-Mobile and Sprint merger deal. James said the state won’t appeal the federal judge’s approval.

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The merger deal has also been conditionally approved by the antitrust regulators. The Department of Justice allowed T-Mobile to acquire Sprint after Dish Network (NASDAQ:DISH) agreed to buy the divested assets from the merger deal. Dish will likely build its own 5G network after the merger deal goes through. Dish would buy Sprint’s prepaid business and certain airwaves.

Now, T-Mobile expects to close the merger deal by April 1. However, the new business combination agreement extends the “outside date” to July 1.

The T-Mobile and Sprint merger deal needs to go through a Tunney Act review. Also, the merger deal needs approval from the California Public Utility Commission. The California regulator hasn’t set a voting date. However, the regulator has time to decide until July 12.

T-Mobile and Sprint’s stock returns

T-Mobile stock has risen 26.9% YTD (year-to-date) as of Thursday. During this period, Sprint and AT&T (NYSE:T) have returned 82.0% and -1.2%, respectively.

On Thursday, T-Mobile stock fell 1.0% and closed at $99.50 with a market cap of $85.3 billion. The stock is trading 46.0% above its 52-week low of $68.16. Meanwhile, T-Mobile stock is trading 1.83% below its 52-week high of $101.35 per share. The stock reached a 52-week high earlier this week after Deutsche Telekom CEO Tim Hoettges said that the T-Mobile and Sprint merger deal is within reach. Hoettges also said that the combined company would have a market capitalization of $120 billion. In comparison, AT&T has a market capitalization of $274 billion.

Analysts have a 12-month mean target price of $94.84 for T-Mobile stock, which is lower than the company’s closing price of $99.50 on Thursday. Today, Raymond James analyst Ric Prentiss downgraded T-Mobile stock to “outperform” from “strong buy.” However, the analyst increased its target price on the stock from $99 to $107.

On Thursday, AT&T stock rose by 0.44% and closed at $38.61. Meanwhile, Sprint stock fell by 0.1% and closed at $9.48.

Read T-Mobile Provides Key Update on Its Sprint Merger Deal and T-Mobile and Sprint Merger Deal Could Be a Winner to learn more. Also, read The Latest Odds of the T-Mobile–Sprint Merger Approval.


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