Jonathan Schildkraut of Evercore ISI proposed a pretty interesting idea that would still allow for a Sprint/T-Mobile merger despite the hesitation on the regulatory front. He suggested the two create a new wireless network player by combining all of their assets and structure the new company as a REIT. Stone Fox Capital feels differently though and believes the two carriers forming a REIT is a bad idea. The analysts acquiesce that it is a good idea, in theory, but if it were to be executed, both companies would suffer. While this structure would allow Sprint and T-Mobile to compete more effectively with AT&T and Verizon, Stone Fox Capital thinks that the public markets don’t reward complex deals similar to this.
They explain that recent examples of REIT spin offs aren’t working well for shareholders. “The biggest issue faced by Sears and Windstream was the additional rent costs from the assets spun off. Suddenly, the non-REIT stocks faced the higher costs of renting space. Also, the REIT is completely reliant on a struggling company now paying substantial rent payments that contributes to increasing losses.”
Another reason the analysts cite is that the higher network lease costs wouldn’t help Sprint solve their current financial problems even though they would have a better network to offer. However, the idea may not matter. “The Department of Justice doesn’t appear to agree with a reduction of the domestic providers to three so the point appears mute. Not to mention, the constant harassing of Sprint by the T-Mobile CEO probably makes a deal very unlikely,” Fox Stone Capital explained.
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