While the proposed merger of T-Mobile and Sprint is strategically sound, according to Barclays Analyst Amir Rozwadowski, the regulatory approval process is far from certain.
“T-Mobile and Sprint have put their best foot forward in positioning the deal to meet what they perceive will be the most important considerations (political and otherwise) for approval,” Rozwadowski said. “Whether that sways the regulatory review process is still difficult to gauge at this juncture. We would argue, however, that this is the best window for both parties to attempt a merger given the composition of the current administration and timing around expected spectrum auction related anti-collusion rules expected later this year.”
Barclays’ take on it is, given the uncertain outcome around the regulatory review process, T-Mobile seems to provide the best risk reward profile out of both companies.
“Even as a standalone company, our expectations for how T-Mobile can use its growing cash coffers on the back of continued crisp execution to generate shareholder value stands out vs. its peers,” Rozwadowski said. “Full execution of its $9Bn back up buyback plan could drive shares to the mid $70s. Conversely, should the deal not receive regulatory approval, Sprint’s balance sheet structure (4.4x levered) may limit the company’s financial and operating flexibility. Ultimately, this could put additional pressure on Sprint’s valuation if compelled to remain a standalone entity.”
June 29, 2018