NEW YORK (Reuters Breakingviews) - T-Mobile US and Sprint are pitching an America First 5G deal. The mobile operators agreed on Sunday to merge to create a more powerful competitor to market leaders Verizon and AT&T. Antitrust concerns stymied earlier talks, but T-Mobile US Chief Executive John Legere said the deal would create rural jobs and keep the country ahead of China in the 5G race. That’s likely to appeal to President Donald Trump’s regulators.
The all-stock deal, which values Sprint at $26.5 billion or $6.62 a share, a premium of less than 2 percent over Friday’s close, puts T-Mobile US owner Deutsche Telekom in the driver’s seat. The German company gets to appoint nearly two-thirds of the board and assures that Legere runs the combined operation. Masayoshi Son, whose SoftBank controls Sprint, will be a director and get three other seats for his minority stake. The previous round of merger talks last year collapsed partly over disagreement on which firm would have more say.
The companies figure at least $6 billion in cost savings, which they value at $43 billion. Breakingviews reckons the number is more like $32 billion after taxing those savings at 21 percent, capitalizing them on a multiple of 10 and backing out the $15 billion it will take to achieve the goal. Nonetheless, T-Mobile said those were only network savings. More could be gained as 5G’s much faster speeds enable a host of new services like autonomous vehicles, and new revenue streams.
The real hurdle is regulatory. The two companies abandoned merger talks in 2014 after the Department of Justice and congressional committees expressed concerns about a deal. And the Trump administration is suing to block AT&T’s $85 billion deal for Time Warner.
That explains why Legere and his counterpart at Sprint, Marcelo Claure, are framing their tie-up around issues near and dear to the president. By investing $40 billion, the combination will help the United States leapfrog China in the race to develop the next generation of wireless, they said. That should appeal to an administration that last month blocked Broadcom’s $117 billion bid for chipmaker Qualcomm because of 5G’s importance for national security. T-Mobile and Sprint also promised to create tens of thousands of jobs directly, many of them in Trump’s base of rural America, as they build their network.
The timing, in the midst of the DOJ’s suit against AT&T and Time Warner, is as audacious as the vision. But Legere and his allies are pushing all the right buttons in a bid to get regulators to yes.
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