Sprint Investors Face Lower Price for Deal Two Years in Making
Sprint Investors Face Lower Price for Deal Two Years in Making
(Bloomberg) -- Sprint Corp. finally got the outcome it wanted, with T-Mobile US Inc.’s long-delayed takeover moving forward.
But now investors -- including majority owner SoftBank Group Corp. -- face a bitter pill: They’ll probably get a lower price for the business than when the merger agreement was first forged in April 2018.
Two years ago, when the two wireless carriers arrived at a price of $26.5 billion, Sprint was in better condition. After figuring in some rough-road mileage and a few lingering problems, that sticker price is probably no longer a fair assessment.
Sprint’s monthly churn -- a closely watched measure of how many customers leave -- has risen to nearly 2%. That means roughly a quarter of its subscriber base is quitting the carrier each year. And the company isn’t making up for the decline by charging more: Average revenue per customer has fallen 5% since the deal was announced.
The original merger agreement lapsed on Nov. 1, and the companies didn’t renew the terms while they fought for government approval. Now they have to resolve the question. On Tuesday, a federal judge rejected a state lawsuit to block the transaction, vaulting it past one of the last major hurdles.
T-Mobile has previously suggested there could be new terms, including a different price. In its statement Tuesday applauding the court decision, the company said it’s seeking “satisfactory resolution of outstanding business issues among the parties.”
The transaction still represents a win for SoftBank and its billionaire founder, Masayoshi Son. Other companies in his portfolio have been struggling, including WeWork, and the deal removes about $40 billion in net debt from his balance sheet.
But there are a number of issues to settle -- beyond the price. The state attorneys general say they are contemplating an appeal of the ruling. And Sprint has agreed to pay an undetermined penalty for misuse of federal funds.
California’s utility commission also hasn’t finished its assessment of the deal, and the Justice Department’s Tunney Act review isn’t complete.
Along the way, Sprint has deteriorated. Its operational and financial performance have both fallen short significantly, said Kevin Roe, an analyst at Roe Equity Research. If the deal isn’t repriced, “T-Mobile investors are going to be disappointed,” he said.
The original merger terms called for an exchange of about 9.75 Sprint shares for each share of T-Mobile. That ratio should now be higher, said Walt Piecyk, an analyst with LightShed Partners, and not just because Sprint has underperformed. As part of their concessions to get federal approval, the companies are giving up assets to Dish Network Corp., which aims to become a national wireless competitor.
Piecyk puts the ratio closer to 12 Sprint shares to each T-Mobile share.
That figure would value Sprint’s takeover price at about $7.50 a share. If those terms are enacted, Sprint investors will have to adjust their expectations. The stock closed at $8.52 in the wake of the ruling Tuesday.
To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net
To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, John J. Edwards III
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