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Just as it appeared that new life had been given to the on-again, off-again merger talks between Sprint and T-Mobile on Nov. 2, the potential deal now looks to be truly over.
The end appears to have arrived when Masayoshi Son, the CEO of Sprint’s parent company, SoftBank Group, walked away from the talks due to his oft-heard concerns that the deal would remove Sprint’s identity and power, according to a Nov. 6 story by Bloomberg.
“Why did we stop merger negotiations? Basically, we didn’t think we should be agreeing to a deal that would result in our loss of control,” Son said at a briefing following SoftBank’s earnings, Bloomberg reported. “There was just a line we couldn’t cross. And that’s how we arrived at the conclusion.”
Sprint has been losing money each quarter for more than a decade as it fights to compete in a tough U.S. cellular market.
Sprint, which is the smaller of the two companies, had sought to be acquired by T-Mobile in a stock swap with Deutsche Telekom, which owns T-Mobile. Sprint had been pursuing the merger as a way of stemming significant losses in revenue and in mobile subscribers.
Son, however, says Sprint’s finances are now improving and that the company “will be able to secure funding on its own,” according to Bloomberg. “Even if the next three to four years will be a tough battle, five to 10 years later it will be clear that this is a strategically invaluable business,” he said. “With that thinking, we increased our holdings of Sprint. Sprint shares may fall on this news, but that’s a chance to buy.”
A T-Mobile-Sprint merger would have placed the combined company more on par with its two biggest competitors, Verizon and AT&T, in terms of subscribers and revenue. The two companies have been engaged in occasional merger talks since 2014.
Within the last week, the discussions were on, then off and then on again, according to news accounts.
Analysts Weigh In
Several IT analysts told eWEEK that the latest failure of the merger talks is understandable.
“It’s not surprising that two companies known for having strong personalities at the helm couldn’t agree on which one would have control after the merger,” said Bill Menezes, a mobile carrier analyst with Gartner. “It was hard to see either [T-Mobile CEO John] Legere or Masa Son taking a back seat to the other.”
What will be interesting to watch now, said Menezes, is “how committed SoftBank will be to make the investments necessary for increasing Sprint’s 4G coverage footprint as well as for what could be a much more complex deployment of 5G in a couple of years.”
While Sprint is no longer bleeding customers, it doesn’t have a big margin for error against the growing number of competitors, he added. “With the distraction of a possible merger out of the way, it is essential that Sprint show customers why they should give it consideration and preference as the No. 4 provider in the U.S. market.”
Charles King, the principal analyst of Pund-IT, said he also isn’t surprised to see Son walk away from the deal. “When their interest began, Sprint and T-Mobile were on relatively similar footing, but since then Sprint’s situation has declined considerably,” said King. “That, in turn, eroded the company’s bargaining position.”
In the end, King said he understands Son’s desire to have control and influence over his investments, but “SoftBank’s shareholders may have been better served by the company’s leadership taking a more flexible approach,” given Sprint’s declining fortunes.
Another analyst, Jan Dawson of Jackdaw Research, said the deal had “always hinged on SoftBank accepting that Sprint warranted a much smaller share of the resulting entity than T-Mobile, which they always seemed reluctant to go along with.”
With the proposed merger out of the way, “the good news now is that both companies can go back to focusing on running their businesses on a day-to-day basis, which in Sprint’s case means finally taking its duty to invest in its network independently more seriously than it has been,” said Dawson.
Rob Enderle, principal analyst of Enderle Group, said the merger would have only made sense if the larger and most successful T-Mobile would have run the combined companies. “That wasn’t acceptable to the Sprint side and given the likely failure of joint leadership, T-Mobile was right to walk away. This is one of those rare times when doing the right thing overcame short-term greed.”
While on- and off-again merger talks had been going on between Sprint and T-Mobile for years, the latest rounds of talks appeared to finally offer the best chance of succeeding. Son started promoting the resumption of merger talks in May apparently in hopes that the election of President Donald Trump might bring about a more relaxed regulatory environment in the telecommunications industry.
Earlier talks had failed in part because U.S. regulators expressed concern that a merger of two of the top four U.S. mobile carriers would result in an unacceptable concentration of market power.