Sprint, T-Mobile move closer on merger price, termination fee

Sprint Corp. is nearing an agreement on the price, capital structure and termination fee for an acquisition of T-Mobile US Inc. that could value the wireless carrier at almost $40 a share, people with knowledge of the matter said.

A deal would bring together the third- and fourth-largest U.S. wireless carriers to create a more formidable competitor to leaders AT&T Inc. and Verizon Communications Inc. Billionaire Masayoshi Son, the founder of Tokyo-based SoftBank Corp., which owns 80 percent of Sprint, has been pitching the deal to skeptical regulators as beneficial to consumers in both wireless and Internet service.

Sprint will offer about 50 percent stock and 50 percent cash for T-Mobile, leaving Bonn-based parent Deutsche Telekom AG with about a 15 percent stake in the combined company, according to people who asked not to be identified because the process is private. The agreement could be announced as soon as July, the people said. At just under $40 a share, T-Mobile’s equity would be valued at about $31 billion.

“In order to compete against the big two, AT&T and Verizon, scale is essential,” said Satoru Kikuchi, an analyst at SMBC Nikko Securities Inc. in Tokyo. “The mobile-phone industry is an industry that needs business investment, so the larger the better.”

Deutsche Telekom, which owns about 67 percent of T-Mobile, was seeking at least $40 a share, two of the people said. SoftBank is willing to pay in the upper $30s, and the two sides have bridged the gap, the people said. The companies haven’t set an announcement date, and there’s still a lot of work to be done before a deal can be completed, including deciding management of the new entity, the people said.

A deal would only have a 30 to 40 percent chance of winning regulatory approval, said Alexandre Iatrides, an analyst at Oddo & Cie. in Paris.

“Even if we take into account the operational recovery that T-Mobile’s new management implemented, this is a good price for Deutsche Telekom,” Iatrides said.

“In the long run they don’t have the size to compete as a standalone company. The amount of capex (capital expenditure) they’d need to maintain the same quality as AT&T and Verizon would be way too high.”