T-Mobile & Sprint Merger Nears Approval, Dish To Buy Assets

It has come to the fore that T-Mobile US, Inc. (NYSE:S) is on the verge of winning regulatory clearance from the Justice Department for its $26.5 billion pending merger with Sprint Corp. (NYSE:S) . Following the news, T-Mobile’s shares increased1.7% in today’s pre-market trading, while Sprint’s shares gained about 6.1%.

T-Mobile, which is a subsidiary of Deutsche Telekom (DE:DTEGn) AG (OTC:DTEGY) , and Sprint, backed by SoftBank Group Corp., have been striving for more than a year to get this supposedly game-changing merger approved.

According to industry sources, DISH Network Corp. (NYSE:S) has finally agreed to pay $5 billion for wireless assets of the two U.S. wireless carriers. The latest move is expected to allow the Justice Department to approve T-Mobile’s merger with Sprint. However, representatives for Dish, T-Mobile, Sprint and the Justice Department did not make any official announcement regarding this development.

After a lot of discussions between the parties, Dish has decided to pay about $1.5 billion for prepaid mobile businesses and around $3.5 billion for spectrum. Under the terms of the deal, Dish cannot sell the assets or hand over control of the agreement to a third party for three years. T-Mobile is likely to reiterate that the financial terms of the deal, which it stated would generate nearly $43 billion in savings, will not be affected by this transaction.

Further, Dish will receive a seven-year agreement allowing it to sell T-Mobile wireless service under its brand. The terms also include a three-year service agreement from T-Mobile to provide operational support as prepaid customers move to Dish.

In April 2018, T-Mobile and Sprint inked an agreement to merge in an all-stock transaction at a fixed exchange ratio of 0.10256 T-Mobile shares for each Sprint share, or the equivalent of 9.75 Sprint shares for each T-Mobile share. The deal is likely to create thousands of jobs while providing the United States an upper hand over China in promulgating the next generation of mobile networks.

The third- and fourth-largest wireless providers (by subscriber count) made commitments to the federal government, including asset sales and rural-service guarantees. Reportedly, the combined company — New T-Mobile — will have about 127 million customers, a strong closing balance sheet and a fully funded business plan. It will represent a total implied enterprise value of about $146 billion.

T-Mobile has already received shareholder approval for the merger. This was considered as a step forward in creating the New T-Mobile through which the company aims to bring robust competition to the 5G era. The new firm will have the network capacity to rapidly create a nationwide 5G network with the breadth and depth needed by U.S. firms and entrepreneurs to lead in the 5G era.

However, T-Mobile and Sprint had to convince Trump administration’s antitrust regulators that there is plenty of room left for healthy competition in the wireless industry, comprising the two leading players, Verizon (NYSE:VZ) Wireless and AT&T (NYSE:T).

In the end, it should be noted that even if T-Mobile secures the Justice Department’s green signal, it faces resistance from a group of state attorneys general. The attorneys think that the merger will hurt competition and eventually put more pressure on consumer’s pocket.

While T-Mobile has long-term earnings growth expectation of 13%, the same for Sprint is 19.6%. Shares of T-Mobile and Sprint have rallied 32.8% and 30.8%, respectively, compared with the industry’s growth of 8.9% in the past year.



T-Mobile currently carries a Zacks Rank #2 (Buy) while Sprint has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

Sprint Corporation (S): Free Stock Analysis Report

Deutsche Telekom AG (DTEGY): Free Stock Analysis Report

DISH Network Corporation (NASDAQ:DISH): Free Stock Analysis Report

T-Mobile US, Inc. (TMUS): Free Stock Analysis Report

Original post

Zacks Investment Research