SoftBank Firmly Optimistic on Merger

Barclays analyst Amir Rozwadowski said SoftBank’s recent earnings call provided incremental insight into the recently announced T-Mobile/Sprint transaction, including its reasons for moving forward following both entities’ decision to walk away late last year, its case for U.S. regulators, and the strategy for Sprint in the event the deal doesn’t get approved. “Should the deal not be approved,” Rozwadowski said, “SoftBank expressed confidence in Sprint’s standalone strategy given its improved cash flow trajectory and balance sheet, or spectrum financing.”

Rozwadowski said SoftBank spoke optimistically about the joint-entity’s prospects, especially as it relates to potential synergy opportunities. “According to management, a small difference in the negotiation for control no longer became an issue after considering the synergy potential from combining the two entities,” he said. “The company believes the combined entity’s improved spectrum portfolio (across low band 600 MHz, mid-band 2.5 GHz, and millimeter wave) will enable it to create the first and strongest nationwide 5G network.”  Management also believes that the combined entity will benefit from greater scale, citing stronger negotiation power with vendors as one example, according to Rozwadowski.

“This not only takes into account the improved scale of T-Mobile and Sprint but also their parent companies SoftBank and Deutsche Telekom. Despite moving past its previous desire to manage control of the joint entity in order to get the deal done, SoftBank expressed comfort in its role in “the new T-Mobile” given board seats and an understanding with Deutsche Telekom on the strategy going forward. Moreover, the company expressed optimism on the joint entity’s ability to leverage opportunities under the SoftBank umbrella even without control over the asset,” Rozwadowski said.

May 11, 2018