The merger between T-Mobile and Sprint has been agreed to along the lines that we had anticipated: An all-stock deal in which Sprint’s parent company, Softbank gives up their control over the externalized assets and device operations.
We had said last year that the deal was likely so long as Softbank was willing to concede on at least part of the value of the supporting operations including discounted loan arrangements for which Sprint has pledged core spectrum and network assets and the device lease finance and supply channel operations. We estimated that these considerations operated by Network LeasCo and Brightstar respectively and the coupled loan instruments had a value of over $10 billion. The write-down of that value can be seen to have been compensated by the increase in the exchange rate over that deemed reasonable by a few financial analysts and the consensus of financial analysts as reported by Zack’s and others. As such, T-Mobile agrees to pay more for Sprint than may be justified as a standalone company while both companies stand to gain by the increased scale efficiencies, combined capabilities of their networks and spectrum assets. The Payoff in an all-stock deal is expected by design to occur down the road rather than in the form of golden parachute stock options and instant gratification for public investors. That makes better strategic sense than a cash acquisition because it much better aligns the parties to make the merger a success and focus more on where they are heading rather than patching up problems. That also works better in regards to assuaging the support of the DOJ and FCC as it sends a future-focused message that has fewer detractors. The personnel of both companies becomes aligned behind the common goal of getting the deal. The two CEOs said that the combined company would add jobs rather than decrease them. While the details have to be seen on that unusual goal, it supports the theme that ‘we are all in this together’ that can stem more readily from an all-stock deal.
I won’t go over the details of the deal as multiple media outlets cover the limited amount of information that has been disclosed and this falls well within the range of what was expected. Our focus is to try to fathom how the networks-spectrum will be leveraged including modes of deployment, equipment variations, time frames, partnering with cablecos, and how these can be leveraged to end services, network virtualization, and a stronger push into enterprise, government, IoT and some ‘new and improved’ markets that we can imagine.
We will be publishing a new series of reports about these trends, stay tuned!