The dynamics within the U.S. telecom industry may change after the on-again, off-again merger talks between Sprint Corp S and T-Mobile Us Inc TMUS resulted in a merger agreement.
What Happened
T-Mobile and Sprint agreed to combine in a $26 billion all-stock deal in which T-Mobile will pay Sprint investors 0.10256 shares of T-Mobile for each one share of Sprint stock owned. Sprint's stock closed Friday at $6.50, while T-Mobile closed at $64.52.
T-Mobile's John Legere will serve as CEO of the combined entity, while Sprint CEO Marcelo Claure will serve on the new company's board.
Why It's Important
The companies believe a combination into one entity could generate $6 billion in annual synergies, or $43 billion based on net present value. The annual synergy rate could represent a 25 percent increase to the combined company's pro former 2018 EBITDA of $22 to $23 billion, Morgan Stanley's Simon Flannery said in a research note.
The combination of the two companies is also expected to generate a company with a much larger scale to attain a leadership position in the 5G space, the analyst said. The deal is expected to increase U.S.-based employment.
AT&T Inc. T and Verizon Communications Inc. VZ could benefit in the future from industry-wide consolidation although the new T-Mobile could prove to be a "formidable competitor" in new areas like 5G and fixed broadband, the analyst wrote. Specifically, Verizon would benefit from few competitors for spectrum assets and even gain access to some diversified spectrum.
What's Next
It remains unclear if the merger would receive the necessary approvals from regulatory bodies as the merger would shrink major U.S. wireless telecom companies from four to three, Flannery said. Nevertheless, the absence of a break up fee as part of the merger agreement implies the two companies are "willing to give it a try" given the "very significant" synergies opportunities.
Sprint was trading down more than 12 percent at $5.67 in Monday's pre-market session, while T-Mobile was down about 1.6 percent at $63.50.
AT&T and Verizon's stock were little changed in the pre-market session.
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Image Credit: fanaticTRX (Own work) [CC BY-SA 3.0], via Wikimedia Commons
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