T-Mobile shares crash after talk of Deutsche Telekom merger
T-Mobile shares are in a free-fall Wednesday morning as investors hear about a possible record-breaking merger.
T-Mobile shares crash after merger news. | Image by PhoneArena
After news broke late Tuesday about merger talks said to be taking place between T-Mobile and its majority owner Deutsche Telekom, you'd expect to see a huge reaction in global stock markets. The deal could create the world's largest telecom company bumping China Mobile from that position.
T-Mobile shares tumble after investors digest talk of Deutsche Telekom merger
However, in pre-market trading today T-Mobile is down over $5 or 2.84% to $189.85. The stock has declined close to 25% over the last year and is closer to its 52-week low ($181.36) than its 52-week high ($263.79) amid negative reports on how customers and reps are reacting to its transition to becoming a "digital" Mobile Network Operator (MNO).
This means that nearly all transactions, from upgrading phones, adding new lines, and even paying monthly bills, are conducted over the carrier's T-Life app. This reduces the need for reps and physical stores, which will allow the company to save on paying commissions, salaries, and leases.
The costs and regulatory requirements of getting such a deal approved are daunting
Deutsche Telekom shares fell over 3% in Frankfurt trading today to 28 Euros ($32.84 USD) as investors fret about the complexity and cost of such a huge merger. Earlier reports suggested that a new holding company will be formed to buy shares of both T-Mobile and Deutsche Telekom.
Would you buy or sell T-Mobile shares at this price?
Another factor weighing down the stock prices of the two telecom giants is a healthy dose of skepticism that a deal will ever happen. Deutsche Telekom currently owns 53.7% of T-Mobile.
Deutsche Telekom would lose the discount it trades at compared to T-Mobile
One stock trader in Europe said that a merger with T-Mobile would be "value-accretive" for Deutsche Telekom and would eliminate the discount in valuation that the latter's shares have compared to T-Mobile's stock. Every dollar of earnings for the Bonn-based company gives it $15 of stock value as opposed to the more than $20 in valuation received by T-Mobile for every dollar the U.S. company earns.
A T-Mobile-Deutsche Telekom combination might not only result in the largest global telecom company based on valuation, it also could set a new record for the largest public merger. The current record belongs to another telecom deal, Vodafone's $202.8 billion acquisition of Mannesmann in 2000. With inflation factored in, that deal would be valued today at more than $389 billion.
T-Mobile is no stranger to massive deals
T-Mobile is not a stranger to huge M&A deals. In April 2018, hoping to snag Sprint's mid-band 2.5GHz spectrum for its 5G signals, T-Mobile offered $26 billion in stock for its rival. The deal didn't close until April 1, 2020.
In March 2011, AT&T offered $39 billion to buy T-Mobile to create what would have been the largest U.S. carrier. However, facing regulatory opposition, AT&T pulled out of the deal later that year.
T-Mobile "insiders" were selling the stock with no buyers earlier this year
Interestingly, T-Mobile insiders have been selling the stock in droves since earlier this year. Beginning in February, sales by T-Mobile insiders swamped purchases 11-0 according to SEC filings. Over a 90-day period ending in the middle of March, T-Mobile insiders dumped nearly $151 million worth of the carrier's stock at prices now much higher than the current price.
Insiders selling shares include former CEO Mike Sievert, still a member of the carrier's Board of Diredctors, current CEO Srini Gopalan, and former Sprint CEO and current T-Mobile Director Raul Marcelo Claure. The latter sold 550,000 shares worth $119.6 million. While some of these transactions mght have been for tax and estate planning, these insiders saved themselves plenty of cash by selling their T-Mobile shares when they did.
Company insiders are forced to file a Form 4 with the SEC when they buy or sell shares of companies they are directors, officers, or greater than 10% owners of.
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