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T-Mobile, Sprint in $146bn merger

April 30, 2018

Suggesting the move will create the only company with the network capacity needed to launch rapidly a nationwide 5G network with the breadth and depth critical to extend the USA’s global Internet leadership in the 5G era, US telcos T-Mobile US and Sprint Corporation are 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 US share.

Based on closing share prices on April 27, this represents a total implied enterprise value of approximately $59 billion (€48.77bn) for Sprint and approximately $146 billion for the combined company. The new company will have a strong closing balance sheet and a fully funded business plan with a strong foundation of secured investment grade debt at close.

The combined company will be named T-Mobile, with the pair suggesting it will be a force for positive change in the US wireless, video, and broadband industries. The combination of spectrum holdings, resulting network scale, and expected run rate cost synergies of $6+ billion, representing a net present value (NPV) of $43+ billion will supercharge T-Mobile’s Un-carrier strategy to disrupt the marketplace and lay the foundation for US companies and innovators to lead in the 5G era.

The New T-Mobile will have the network capacity to rapidly create a nationwide 5G network with the breadth and depth needed to enable US firms and entrepreneurs to continue to lead the world in the coming 5G era, as US companies did in 4G. The new company will be able to light up a broad and deep 5G network faster than either company could separately. T-Mobile deployed nationwide LTE twice as fast as Verizon and three times faster than AT&T, and the combined company is positioned to do the same in 5G with deep spectrum assets and network capacity.

The combined company will have lower costs, greater economies of scale, and the resources to provide US consumers and businesses with lower prices, better quality, unmatched value, and greater competition. The New T-Mobile will employ more people than both companies separately and create thousands of new American jobs.

Following closing, the new company will be headquartered in Bellevue, Wash., with a second headquarters in Overland Park, Kan. John Legere, current President and Chief Executive Officer of T-Mobile US and the creator of T-Mobile’s successful Un-carrier strategy, will serve as Chief Executive Officer, and Mike Sievert, current Chief Operating Officer of T-Mobile, will serve as President and Chief Operating Officer of the combined company. The remaining members of the new management team will be selected from both companies during the closing period. Tim Höttges, current T-Mobile US Chairman of the Board, will serve as Chairman of the Board for the new company. Masayoshi Son, current SoftBank Group Chairman and CEO, and Marcelo Claure, current Chief Executive Officer of Sprint, will serve on the board of the new company.

“This combination will create a fierce competitor with the network scale to deliver more for consumers and businesses in the form of lower prices, more innovation, and a second-to-none network experience – and do it all so much faster than either company could on its own,” said Legere. “As industry lines blur and we enter the 5G era, consumers and businesses need a company with the disruptive culture and capabilities to force positive change on their behalf.”

“The combination of these two dynamic companies can only benefit the US consumer. Both Sprint and T-Mobile have similar DNA and have eliminated confusing rate plans, converging into one rate plan: Unlimited,” said Claure. “We intend to bring this same competitive disruption as we look to build the world’s best 5G network that will make the US a hotbed for innovation and will redefine the way consumers live and work across the US, including in rural America. As we do this, we will force our competitors to follow suit, as they always do, which will benefit the entire country. I am confident this combination will spur job creation and ensure opportunities for Sprint employees as part of a larger, stronger combined organisation, and I am thrilled that Kansas City will be a second headquarters for the merged company.”

“Going from 4G to 5G is like going from black and white to color TV,” added Claure. “It’s a seismic shift – one that only the combined company can unlock nationwide to fuel the next wave of mobile innovation.”

“This isn’t a case of going from 4 to 3 wireless companies – there are now at least seven or eight big competitors in this converging market. And in 5G, we’ll go from 0 to 1. Only the New T-Mobile will have the capacity to deliver real, nationwide 5G,” added Legere. “We’re confident that, once regulators see the compelling benefits, they’ll agree this is the right move at the right time for consumers and the country.”

The pair say that in a rapidly converging marketplace, the new company will bring more choice and competition – for all consumers, including three key underserved areas:

  • Rural communities. Rural Americans seldom have a choice of more than one or two wireless, broadband, or cable providers. The New T-Mobile will end that with increased reach and plans to open hundreds of new stores in rural communities, creating thousands of new jobs. Millions of Americans in rural communities will have more choice and competition, where they may have none today.
  • 51 per cent of Americans have only one high-speed broadband option – no choice at all! The combined company will create a viable alternative for millions by enabling mobile connections that rival broadband, driving prices lower and improving service.
  • Business and government wireless services. Today, Verizon and AT&T dominate this category with 4x more customers than Sprint and T-Mobile added together. With its assets and capabilities, the new company will unlock real competition for business and government customers.

The Boards of Directors of T-Mobile and Sprint have approved the transaction. Deutsche Telekom and SoftBank Group are expected to hold approximately 42 per cent and 27 per cent of diluted economic ownership of the combined company, respectively, with the remaining approximately 31 per cent held by the public. The Board will consist of 14 directors, nine nominated by Deutsche Telekom and four nominated by SoftBank Group, including Masayoshi Son, Chairman and CEO of SoftBank Group, and Marcelo Claure, CEO of Sprint. John Legere, CEO of the New T-Mobile, will also serve as a director. Upon consummation of the transaction, the combined company is expected to trade under the (TMUS) symbol on the NASDAQ.

The transaction is subject to customary closing conditions, including regulatory approvals. The transaction is expected to close no later than the first half of 2019.

Deutsche Telekom says the move reinforces its business in the United States and a “unique” combination which will see the Group benefit both from the US business with its opportunities for growth, and at the same time from its strong business in Europe, which is characterised first and foremost by the bundling of fixed network and mobile communications.

“This is an exceptional deal, which will strengthen Deutsche Telekom’s presence in the leading markets in the Western World,” said Höttges. “No other company in the industry is represented as strongly in both the USA and Europe as we are. Ninety per cent of our revenue comes from countries with particularly strong economic conditions. Deutsche Telekom benefits from growth on both sides of the Atlantic.”

The new, larger T-Mobile US will have around 127 million branded customers and revenue of some €76 billion, based on expected figures for 2018. This will position the company on a level with the two national competitors, AT&T and Verizon, in future. These two companies generate a disproportionately high share of total earnings and free cash flow among all the mobile communications companies in the United States.

“This is a consistent continuation of our strategy for the successful further development of our US business. First we restructured, then invested and expanded through the merger with Metro PCS and targeted spectrum acquisitions. Now we want to take on a leading role in the market,” continued Höttges.

The transaction will not affect Deutsche Telekom’s forecast for the development of the Group in the current 2018 financial year. The planned high investment of over €5 billion annually in Germany by Deutsche Telekom will not be affected by the merger. Deutsche Telekom is sticking to its ambitious expansion plans for its fibre optic and 5G networks in Germany. Planning remains for adjusted EBITDA of around €23.2 billion (assuming an exchange rate of 1.13 $/€) and free cash flow (before dividends and investment in spectrum) of around €6.2 billion.

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