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June 6, 2014

Sprint And T-Mobile Closer To $32 Billion Merger

Peter Suciu for redOrbit.com - Your Universe Online

The nation's number three and four mobile carriers have discussed merger options in the past, but talks were reportedly renewed on Wednesday. Sprint and T-Mobile have reportedly settled on the terms of what could be a $32 billion deal that is likely to be announced later this summer.

The New York Times reported that under the terms of the deal, which at this point are anything but official and most certainly preliminary, would see Sprint acquire T-Mobile for about $40 a share in cash and stock. That was about a 17 percent premium on Wednesday's price, the Times added.

The carriers may have been motivated to move forward with a merger as rivals Verizon and AT&T each now have more than 100 million customers and continue to grow. Last month AT&T also announced its own acquisition plans, as the number two mobile carrier's parent company announced plans to acquire satellite pay-TV service DirecTV for $49 billion. That deal would give AT&T control of the country's largest satellite TV operator.

Sprint is currently majority-owned by SoftBank, a Japanese group controlled by billionaire Masayoshi Son, which bought a stake in the carrier in late 2012. Since completing the acquisition of Sprint last year, he had suggested that acquiring T-Mobile would provide the scale to compete against Verizon and AT&T.

"AT&T and Verizon dominate the industry's Ebitda and capital investment," Walter Piecyk, an analyst at BTIG Research, referring to a common indicator of a company's financial performance, told the New York Times. "And Masa is making a credible case that they not only need scale to compete more effectively in the wireless industry but could also offer new and needed competition for wired broadband."

This is of course just one of many deals that are changing the state of the telecommunications industry in the United States. While AT&T had sought to buy T-Mobile a few years ago, that deal was unable to secure regulatory approval in 2011.

Given that Verizon and AT&T are now mega-players, regulators might see that a merger of Sprint and T-Mobile is necessary to create a viable third player of near equal size.

"This is a very interesting story. Based on all that we see happening in the industry lately, I think the Sprint T-Mobile deal is much more likely to be approved than it was just six months ago," said telecommunications industry analyst Jeff Kagan. "One year ago Sprint and Softbank completed their merger. At that time there were no other mergers in the news.

"Next the word was that Sprint wanted to merge with T-Mobile. No formal announcement from the companies and no formal response from regulators," Kagan told redOrbit. "However when this started last year regulators comments did not seem like they were very interested."

Kagan added that since that time the world and the industry has changed.

"First Comcast and Time Warner Cable," Kagan said, referring to the merger of the nation's top two cable TV providers, which has also seen some industry push-back. "Next it was AT&T DirecTV. All of a sudden this Sprint T-Mobile merger isn't a stand-alone deal. All of a sudden it's just part of a larger pack of deals."

As noted, the regulators could look quite differently at what this deal means given that those other deals are changing not only the mobile phone industry but the larger telecommunications industry.

"At this point I think regulators will look at Sprint T-Mobile differently," said Kagan. "The regulators will now take a longer-term historic perspective on the changing industry. We can't expect regulators to allow some companies to merge and get bigger and not others. So I think we will see regulators either approve or deny all the deals. Based on all this, I think the Sprint T-Mobile deal is much more likely to be approved than it was just six months ago.

"Of course we'll have to wait to see what regulators have to say," Kagan added.