Complications Abound

Kevin Smithen at Macquarie Securities recently noted that a fall in Dish Network shares would further complicate deal negotiations. “We have been surprised that T-Mobile shares have remained in the $39-$40 range over the past few weeks despite a 10% pullback in Dish Network shares over the past four weeks,” Smithen wrote. “We continue to believe that there is a $4-$5 deal premium embedded in T-Mo shares and that the ‘unaffected’ share price is $34-$35.” Smithen continues to explain why this would impact a Dish-T-Mobile deal, “Based on current share prices for both companies, a $45 bid with a 40% stock component would require the issuance of 215 million new Dish shares vs. our initial 188 million share estimate, and accretion would fall by 9% on our 2017 FCF/share estimates. The dilution would increase if Deutsche Telekom demands a higher stock component. If we factor in the higher debt funding costs, a deal would now be 15% less accretive than our initial estimates,” according to Smithen. “With both the high yield markets and the equity markets becoming more volatile over recent weeks, we are incrementally more cautious on T-Mobile shares at current levels. While a deal could certainly be announced in the near term, we believe there is a high probability that nothing happens between T-Mobile and Dish over the summer and that T-Mobile shares could pull back to $34 or $35.”