What Would A T-Mobile-Sprint, All-Stock Merger Look Like, And Is It Likely?

A potential merger between T-Mobile US Inc TMUS and Sprint Corp S appears to be progressing, but the final outcome remains unclear at this point.

An eventual merger between the two telecom companies would create "meaningful" synergies but may take several years to realize, UBS' John Hodulik commented in a report. The integration costs will likely be around $7 billion spread out of three years and would combine for around 30 percent of the postpaid phone market and hold a market leading 40 percent share in the prepaid category.

The companies would also combine for approximately $55 billion in revenue, grow at a low-single digit rate, generate a cash EBITDA of $25 billion which includes $3.5 billion a year in run-rate synergies, the analyst said. By 2020 the combined entity's pro forma free cash flow per share could come in at $7.30.

On the other hand, the combined entity would also trigger the spectrum cap in most of the biggest markets, which implies a divestiture of some sort would be necessary, Hodulik noted.

Both AT&T Inc. T and Verizon Communications Inc. VZ will "benefit operationally" from near-term disruption as the result of the merger, the longer-term impact to their respective businesses will depend on any deal remedies and the potential creation of a stronger entrant to the market.

Finally, the likelihood of the merger passing "remains far from certain" (50 percent likelihood) and the path towards approval would likely cause T-Mobile and Sprint's stocks to both "trade at a steep discount to their pro forma value."

Related Links:

Here's Why Wireless M&A Shouldn't Weigh On SBA

AT&T, Verizon The Likely Winners In The Event T-Mobile-Sprint Deal Rumors Ever Come To Fruition

Image credit: Mike Mozart, Flickr