Sprint Corp. might back away from a potential merger with T-Mobile for the second time in three years after months of negotiations, according to The Wall Street Journal. The deal would put the companies, which are currently the number three and number four U.S. carriers, in a position to compete with industry leaders as the landscape continues to change.
The deal began to hit a snag last week when SoftBank Group Corp., Sprint’s parent company, decided to suspend the merger efforts, according to reports. The company’s founder and chairman Masayoshi Son reportedly had concerns about yielding too much control in the potential transaction. There has also been difficulty in getting both companies to agree on a valuation for Sprint’s shares.
Sprint’s shares have fallen recently, which has completed the deal even further. The slump could possibly hamper what Sprint shareholders could expect if the merger is successful; they most likely will not get as much premium beyond their current value. Now, Sprint has shifted its focus on investing its network instead of a merger, according to reports.
The most recent talks have been anything but smooth. The rockiness led to Son reaching out to U.S. cable companies after Sprint and T-Mobile failed to agree on numerous issues, including price, according to a Wall Street Journal report.
A failed deal would not be new for these companies. T-Mobile and Sprint explored a merger in 2014, but it fell through when the carriers decided regulators would reject it.
The most recent talks have T-Mobile Chief Executive John Leger in place to run the new company, and its parent company Deutsche Telekom wants to keep control of the carrier in order to include its U.S earnings in quarterly reports, per The Wall Street Journal.
This agreement has Softbank feeling like it may be giving up too much influence and because of that it may be unwise to move forward. Part of that reasoning comes from Son’s belief that artificially intelligent robots and other devices could be a major business opportunity and being able to connect to those devices will be crucial. According to reports, Son agreed to give up control in principle, but wanted to see how SoftBank could hold on to some sort of additional influence presently or down the line.
If the merger does not go through, it will most likely impact Sprint more than T-Mobile. The latter has added millions of new subscribers and moved ahead of Sprint into the number three spot in terms of subscribers. Sprint has overcome customer losses over the years, but has had a trouble staying profitable. The company would be forced to spend more on its network because they’ve fallen behind their competitors in that field, according to analysts.
Even if the companies made the deal work, there are no guarantees it will be approved in Washington. Republican regulators may be more open to it than those in the previous administration, but it may still face scrutiny because it involves removing a competitor.
“Sprint needs this merger so much more than T-Mobile does,” Recon Analytics Inc. researcher Roger Entner said, adding that if they come back to it later, “T-Mobile and Deutsche Telekom will in all likelihood be in a stronger position.”
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