Inside the failed T-Mobile-Sprint talks

Inside the failed T-Mobile-Sprint talks
Yesterday, we told you that merger talks between Sprint and T-Mobile had been called off for good, despite the strong possibility that such a deal would have created a financially sound carrier that could challenge Verizon and AT&T. So what happened to the deal that turned what many considered a sure thing, into just another failed attempt to merge the numbers 3 and 4 stateside carriers?

According to the Wall Street Journal, blame for the failure to combine T-Mobile and Sprint should be placed on SoftBank CEO and Sprint Chairman Masayoshi Son. The executive had it in his mind that he would be able to merge the weaker Sprint with the much stronger T-Mobile, and still come away with control of the combined company. That wasn't going to happen. T-Mobile has become the most innovative and fastest growing of the four major U.S. carriers and doesn't need Sprint to challenge AT&T and Verizon over the next decade With Sprint in its back pocket, the only difference is that this might have happened sooner.

What Sprint has that T-Mobile wants, is the horde of 2.5GHz high-frequency spectrum which complements T-Mobile's trove of low frequency spectrum in the 600MHz and 700MHz band. While the latter travels farther and penetrates buildings better, Sprint's airwaves could be useful to T-Mobile when it starts to build out its 5G network.

When SoftBank purchased its majority stake in Sprint back in 2013, Son tried to work out a three-way deal with Deutsche Telekon to purchase the German telecommunication firm's U.S. subsidiary, T-Mobile. At the time, T-Mobile was the fourth largest U.S. wireless carrier and was way behind in building out its 4G LTE network. Both sides tried again in 2014, but the FCC and DOJ both hinted that they would reject any deal.

As we said, things are different now. T-Mobile is now dealing from a position of strength. With a CEO as famous and popular as any executive has ever been, T-Mobile's brash John Legere has his own large legion of fans who follow him on social media. Almost every minute of every day is broadcast on Instagram or Twitter and this has had the effect of raising the visibility of the T-Mobile brand. Legere's focus on fixing consumer's pain points has also helped T-Mobile grow rapidly.

Last month, it appeared as though both sides had agreed to the outline of a deal. The transaction would be made using stock only. Deutsche Telekom would have control of the merged company, and John Legere would run it. That would leave SoftBank's Son without a say in the future direction of the company. And while Sprint's investment banking team thought that the exchange ratio for the deal (essentially, the number of T-Mobile shares that would be exchanged for one Sprint share) had been agreed on, Sprint's falling stock price had T-Mobile thinking about lowering the exchange ratio.

According to the Journal, this was not what Masayoshi Son wanted to hear. He considers Sprint to be a major SoftBank asset and forecasts a future where wireless firms will connect millions of devices for businesses, including robots. Thus, Sprint's Chairman did not want to give up control of the combined carrier. For its part, Deutsche Telekom also sought control so that it could include U.S. results in the company's quarterly and annual earnings reports.

After SoftBank scrapped the deal on October 30th, John Legere spoke on the phone with Sprint CEO Marcelo Claure following a T-Mobile board meeting. Legere told his Sprint counterpart that T-Mobile's board didn't want the deal to die. As a result, the company adjusted the previously discussed terms of the deal allowing the transaction to continue with an exchange ratio that would give Sprint a larger ownership stake while giving up fewer shares. But this was not good enough for Masayoshi Son and the deal was scrapped.


The feeling is that the two carriers have missed a golden opportunity to create a challenger to Verizon and AT&T. As one person close to the talks said, "The synergies that this deal offered were bigger than the deal. Bigger than the market cap of Sprint. The synergies were massive, and that’s what keeps everybody going." A combined T-Mobile-Sprint would have had close to the same number of subscribers as AT&T and might have thrown a scare into Verizon, the nation's largest carrier. Unlike 2014, this time a deal might have made it past the FCC and DOJ. Now, we'll never know.

source: WSJ

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18 Comments

1. Soundjudgment

Posts: 370; Member since: Oct 10, 2016

Ahhh well. T-Mobile should now go swallow up.... errrr... I mean, *negotiate* a deal with US Cellular and get some more holdings that way.

8. cncrim

Posts: 1588; Member since: Aug 15, 2011

Not going happen anytime soon, USC is binding with Verizon at this moment.

16. Greenmule

Posts: 129; Member since: Apr 24, 2017

Deutsche T should buy Shentel. Shentel is Sprint's best partner on the east. If Deutsche T would buy Shentel, it would be a slow and painful demise for Sprint. T-Mobile could string 600 Mhz band 71 from Allentown, PA to Memphis, TN. and spin-off Shentel's landline business.

3. rebretz

Posts: 114; Member since: Dec 26, 2011

Sprint's only hope is if Comcast or Charter buys a percentage now.

4. lexingtonsteeley

Posts: 19; Member since: Jun 12, 2013

Are these guys insane? Son and Claure have done nothing radical to improve Sprint over the years and would absolutely ruin T-mobile. I wouldn't blame John L for not giving up all his hard work to get T-Mobile where they are now. If Son and team couldn't improve a struggling Sprint up to this point, what makes them think they could take over and run both?

14. joevsyou

Posts: 1091; Member since: Feb 28, 2015

right! it's like Hey i am failing and growth has slowed, Someone comes in and say hey give me control and i will help grow your business like never before. You can keep selling at your current rate or give up a bit of control and let someone show you how it's done.

5. Dr.Phil

Posts: 2429; Member since: Feb 14, 2011

I have a feeling we may see Dish Network team up with Sprint and produce something competitive to DirecTV and AT&T. Dish has spectrum holdings and I believe the government has told them they have so many years to use it or they lose it. I can imagine seeing the first real hybrid satellite mobile network in the pipeline. The only thing Sprint would have to work out is how to get some lower spectrum in order to penetrate buildings.

6. erolva35

Posts: 20; Member since: Oct 18, 2017

Sprint should’ve took it before they go even more downhill and end up being bought out for cheaper. Someone will buy them and takeover eventually.

9. cncrim

Posts: 1588; Member since: Aug 15, 2011

Innovations usually come at end of few breath, remember Tmobile was evolved fast when she at her last breath. The biggest bottle neck Sprint has right now is the activation process, imaging trying to switch phone couple months from s8 to iphone to s9 etc. it is pain in the butt, leavr it alone take it prepaid. Yes, Sprint have too many regulations that at first seem hurt company, but bigger picture the company gain in longer run.

10. torr310

Posts: 1667; Member since: Oct 27, 2011

Like Yahoo...

17. Greenmule

Posts: 129; Member since: Apr 24, 2017

The speculation is that Masayoshi Son, himself, will take Sprint private. Many, many negative things can happen to Sprint's stock now. Right now, Sprint is trading under $6.00/ share. Be on the lookout for people in their naked shorts. There are numerous Japanese Trust Funds that are invested in Softbank and the drag that Sprint will put on Softbank's returns will force Masayoshi Son to do something drastic to keep the investors he has in Softbank.

7. FAQMD1

Posts: 17; Member since: Aug 15, 2014

Even if T-Mo adds 1M subscribers a quarter for the next 10 years they will still be the 3rd largest player with no clout. T-Mo needs Sprint more than Sprint needs T-Mo. I know this sounds crazy but Sprint has the resources to sustain itself while T-Mo does not. The 2 combined companies would have the clout to force the phone manufactures to give them preferential pricing especially with John L as the CEO. T-Mo can't last another 10 years doing what they are doing. They do not have the spectrum needed (nor the money to buy the spectrum) to be competitive and the subscriber acquisition is very high. Sprint has so much spectrum that they can sell or make deals with other providers that they can survive. Sprint could easily swap some 2.5 spectrum for some 600 spectrum from Dish and it would be fine. A T-Mo / Sprint merger favors T-Mo because it gives T-Mo the subscriber acquisitions needed to be competitive with Verizon & AT&T and the spectrum they need for 5G build out. And with Jon L as the CEO they would rock. T-Mo needs to do this deal.

11. TheOracle1

Posts: 2329; Member since: May 04, 2015

"T-Mo can't last another 10 years doing what they are doing. They do not have the spectrum needed (nor the money to buy the spectrum) to be competitive and the subscriber acquisition is very high." You seem to forget that T-Mobile is owned by Deutsche Telekom and they certainly have the money. Sprint is going down the same path as Yahoo and will be bought for peanuts down the road.

12. dimitrie

Posts: 6; Member since: May 17, 2014

Sprint just signed its Death Certificate.

13. joevsyou

Posts: 1091; Member since: Feb 28, 2015

good reddens. Sprint might own more But they are a failing company so why on earth would they get majority power. TM has been killing it and has been growing the last 4 years and has made some great choices, few bad ones but non the less mostly good. It's like playing shark tank right here. Sure you got a great product and ya you will sell some But if you give me a chunk of your company i will take you to the next level in a fraction of the time and help you sell at 10x of your current rate. Do the math of which path you will come out ahead.

15. mike2959

Posts: 696; Member since: Oct 08, 2011

It always comes down to who’s got the bigger d$&$. Ego drives many CEO’s and that’s exactly what happened here. As far as financials go TMO’s got top line growth and sales but look to the bottom of that P&L and it’s jot pretty. Sprint is a mess and has been for 10 years.

18. drazwy

Posts: 355; Member since: Jan 15, 2014

Oh well. Masayoshi Son's ego is bigger than the company and he'll take it down with him.

* Some comments have been hidden, because they don't meet the discussions rules.

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