TMobile, MetroPCS Deal Leaves Sprint Scrambling
NEWS ANALYSIS: Sprint's board is having second thoughts about merging with MetroPCS, now that the latter has committed to Deutsche Telekom's T-Mobile.
T-Mobile and MetroPCS have stated their commitment to a merger, but with the union far from finalized, Sprint is reconsidering whether it was right to walk away from a nearly finalized deal with MetroPCS in February. According to Bloomberg, Sprint's board plans to meet Friday, Oct. 5, to discuss whether it should present MetroPCS with a counteroffer to T-Mobile parent company Deutsche Telekom (DT). As part of that deal, MetroPCS investors will receive $1.5 billion in cash and 26 percent of the new company. Bloomberg earlier this month reported that Sprint's stock was trading at twice the value it was at in February, putting Sprint in a nice position for an acquisition. Piper Jaffray analyst Chris Larsen, telling Bloomberg Oct. 5 that a deal between MetroPCS and Sprint would "just make sense," said the latter could pay $15 a share for MetroPCS, which closed the day before at $12.69, and still come out ahead. However, complicating the deal since Sprint's board voted against it in February is the $150 million break-up free MetroPCS would have to pay were it to back away from DT. If T-Mobile were to pull out, the fee would be $250 million. Also notable is that Sprint and T-Mobile have also each considered the other. In March 2011, Sprint was said to be in talks with DT about acquiring T-Mobile. Later that year, after AT&T walked away from its nine-plus-month effort to acquire T-Mobile—a merger the federal government ultimately disapproved of, believing it would hurt competition and ultimately raise prices for consumers—DT received a sorry-that-didn't-work-out gift of spectrum and approximately $4 billion; money that DT reportedly considered putting toward purchasing Sprint. Sprint was initially also a vocal opponent of AT&T's acquisition of T-Mobile, which it's been suggested was motivated less by a concern for the wellness of the market than by a desire to keep T-Mobile available. Sprint CEO Hesse told investors in Sept. 2011, BGR reported, that the Justice Department's sentiments toward the AT&T deal weren't about necessarily maintaining four major carriers. A "very strong argument" could be made, he said, that they would support a merger of Sprint and T-Mobile.
With analysts believing that consolidation in the market is inevitable, and Sprint's two major prospects teaming up, Sprint has a number of motivations for stepping between them and working out a deal with MetroPCS. Sprint's network, unlike T-Mobile's, is compatible with MetroPCS's. After years of suffering the repercussions of its purchase of the incompatible iDEN network in 2005, Sprint thoroughly understands the benefit of buying compatible technology. (DT, well aware of Sprint's iDEN debacle, has made sure to point out that its network transition will be a different story).