Monday, April 16, 2018

A Sprint/T-Mobile merger...

A combination of Sprint and T-Mobile has been talked about for the last year.  Several discussions led to nothing and now they apparently are back at it.  On the face of it, this would be a good deal, and maybe a necessary deal.  Both firms are at a distinct disadvantage competing against the top two, AT&T and Verizon.  Both Sprint and T-Mobile are maintaining their customer bases, but with various types of discounts and special offers.  This will not set them up well to invest in new spectrum.

It is Japan vs. Germany, as Softbank's mercurial megalomaniac Masayoshi Son controls 85% of Sprint and Deutsche Telecom owns approximately 60% of T-Mobile.  Sprint's U.S. management seem to be corporate functionaries while T-Mobile is actively managed by the outspoken and at times controversial John Legere(always entertaining when infrequently interviewed on CNBC).  T-Mobile's stock is down 3% for the year while Sprint is off a material 30%.  The consummation of a merger is more about cosmetics that agree with both owners rather than the financial rationale for the transaction.

More than most deals, the costs that could be reduced by a merger, both overlaps and more market power in purchases, are attainable without wrenching change.  The creation of a third major wireless choice could reverberate beyond the U.S.  The window to get this done is closing as Trump's unpredictability will only grow.  At the moment, he has no beef with these two firms, and does publicly against the ATT/Time Warner combination.  One would think that whoever thinks for Trump would not want him to be seen as repeatedly obstructionist to economically advantaged mergers.

Now is the time.  This deal can be done, and it should be.  It should be noted that a speculative position in Sprint is held here.

Postscript:  In a way, this brings back the memory of my involvement in the merger of Manufacturers Hanover Trust and Chemical Bank in 1991.  They were two well known, even storied, names who did not have the critical mass to compete on their own.  They combined to have a fighting chance.  And the rest is...


Post a Comment

<< Home