T-Mo and Sprint: Third Time’s a Charm?

T-Mobile and Sprint have once again re-engaged in discussions to combine the two companies. This would be the third time a deal would be attempted in the last four years. The news comes five months after both companies announced that potential merger discussions had been tabled.

“Our take,” said Barclays analyst Amir Rozwadowski, “is we continue to believe a deal makes sense, both strategically and financially. That view, has never wavered. The question is at what price and whether both operators can come to terms this time around.” Rozwadowski said a number of new considerations likely need to be taken into account, such as Sprint’s revitalized spending plans, the regulatory environment, etc.) while questions on prior reported hurdles (i.e. SoftBank’s previously stated desire to maintain control of the joint entity) need to be answered.  

So what has changed? “First and foremost is Sprint’s undertaking of a material capex plan to reinvest in its network,” Rozwadowski said. “The company has guided to expectations at the low end of its targeted range of $3.5Bn-$4.0Bn this year, ramping to $5.0Bn-$6.0Bn in the years following. While still in the early stages of its network investment plan, the carrier has signed deals with two of the three major tower operators, engaged in backhaul/densification partnerships with Altice and Cox Communications and, to our understanding, signed a significant dark fiber backhaul contract.”  He pointed out in addition to increasing its capex outlook, rising network costs will likely temper net cost savings relative to prior years. “With cost synergies being the primary factor supporting a combination, Sprint’s reversal of its spending strategy (recall, during the most recent merger speculation, Sprint adopted a ‘more for less’ approach to its spending plans) is likely to be taken into consideration when considering potential valuation levels,” Rozwadowski said.

April 12, 2018         

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