updated 09:53 pm EDT, Wed June 4, 2014
Companies agree on $40 stock price, $1 billion payout if deal doesn't pass regulation
Cellular carriers Sprint and T-Mobile have agreed upon an outline for a proposed merger that would see Sprint acquiring its rival company for around $32 billion. Sources tell the Wall Street Journal that Sprint would pay about $40 a share for T-Mobile. The deal would further consolidate the cellular marketplace, reducing the number of large carriers to three if the merger is able to pass federal regulation.
A formal contract hasn't been laid out, but the two companies have come to an agreement over "broad terms" of the deal. Such terms include Sprint paying out $1 billion in assets and cash to T-Mobile if the deal doesn't pass regulatory scrutiny or is terminated. If the deal makes it past the Federal Communications Commission (FCC) and the Department of Justice, Deutsche Telekom AG would own between 15 to 20 percent of the resulting company. The stake would come from Sprint paying out a mix of 50 percent stock and 50 percent cash for T-Mobile.
According to information from Bloomberg, Deutsche Telekom had been looking for $40 billion from Sprint to complete the deal. SoftBank, which owns around 80 percent of Sprint, was only looking to pay in the upper $30s. Amount of the termination fee was a point of contention between the two companies as well. SoftBank only wanted to pay out $1 billion, while Deutsche Telekom wanted something closer to $3 billion in value.
An official announcement on the deal is still to come as more details are hashed out. It is possible that such an announcement could come as early as July. It's believed that an opening has been created for the merger to go through because of ongoing issues the FCC and other government offices are facing. Changes in the spectrum auction rules, the net neutrality debate and focus on the Comcast-Time Warner Cable deal are thought to give the merger a chance. If the acquisition does go through, the resulting company would have over 50 million postpaid customers.
Sprint's acquisition of T-Mobile comes a lower price point than AT&T's previous bid in 2011. AT&T was forced to withdraw its $39 billion bid for T-Mobile after it faced harsh criticism from various groups and the United States government. AT&T would eventually have to pay T-Mobile $4 billion in cash and spectrum as part of the failed deal.