T-Mobile parent company Deutsche Telekom AG considers the $33-a-share offer for a 56.6 percent stake as not competitive and inferior to a separate bid planned by Sprint Corp. (S), said a person familiar with the matter. Masayoshi Son, the billionaire whose SoftBank Corp. owns Sprint, is said to be working on an offer of about $40 a share for T-Mobile, a deal valued at about $32 billion.
The emergence of a rival bidder puts pressure on Son to push ahead with his plan to merge the third- and fourth-largest U.S. wireless carriers. Iliad submitted its proposal to T-Mobile’s board, the French phone carrier said today in a statement. T-Mobile confirmed today in a regulatory filing that it received the proposal and said it had no further comment. Deutsche Telekom, which owns two-thirds of T-Mobile, isn’t in formal talks with Iliad, said the person familiar with the matter, who asked not to be identified because the situation is private.
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Significant Hurdles
The boards for Deutsche Telekom and T-Mobile still see significant hurdles to a merger with Sprint that need to be addressed before a deal is announced, according to two people familiar with the matter. Some of the concerns are regulatory and some involve the deal structure, the people said. Any deal with Sprint won’t be announced before September, another person said.Anne Marshall, a T-Mobile spokeswoman, didn’t immediately respond to requests for comment on Iliad’s offer. Andreas Fuchs, a spokesman for Bonn-based Deutsche Telekom, and Roni Singleton, a Sprint spokeswoman, declined to comment.
Iliad’s cash offer would be financed with debt and equity, and the proposal values the remaining portion of T-Mobile at $40.50 a share based on $10 billion in potential savings to be shared between the two companies, Iliad said. There’s no certainty the board will accept the proposal, the company said.
T-Mobile jumped as much as 9.1 percent to $33.75 in New York trading and was at $32.92 at 2:17 p.m. Sprint shares fell 6.1 percent to $7.29.
Xavier Niel, founder of Iliad SA.
Regulatory Advantage
While the Iliad offer is lower than the one SoftBank is said to be proposing, it does come with an advantage in terms of regulatory approval. By combining with a foreign company instead of a U.S. rival, T-Mobile wouldn’t be reducing the number of American wireless carriers from four to three. U.S. regulators have indicated they prefer not to reduce the number of competitors.“One key benefit of having Iliad as a suitor is it would not be a ‘4 to 3’ deal like TMUS/S is,” said Stephen Sweeney, a strategist at Elevation LLC, referring to T-Mobile and Sprint by their ticker symbols. “It would have a much easier time getting regulatory approval,” he wrote in a note to clients.
Even if it rejected an initial offer from Iliad, the priority for Deutsche Telekom’s management is getting out of the U.S., according to two people familiar with the matter. It would be open to forgo some sales proceeds in exchange for lower risk of rejection by regulators, they said.
Bidding War
The offer may spark a bidding war for T-Mobile, Sweeney said. He estimates the company’s fair value at $38 a share.Sprint and T-Mobile had been planning for the U.S. regulatory review process to take at least a year, people familiar with the matter said earlier this year.
Iliad, the fourth-largest French mobile-phone company, made an informal offer of as much as 5 billion euros ($6.7 billion) earlier this year for competitor Bouygues Telecom, which is seeking a higher bid, according to people familiar with the matter. Paris-based Iliad had sought the deal to get access to Bouygues’s network since it has yet to build its own in full since entering the market in 2012.
Difficult Deal
Iliad said it has the support of international banks to fund the offer for T-Mobile. Iliad has a market value of 12 billion euros, based on today’s close of 206 euros. With today’s stock gain, T-Mobile is valued at $26.5 billion.“Iliad is about a third of the size of T-Mobile US, and we don’t think there would be synergies from the deal,” said Jonathan Chaplin, an analyst at New Street Research, in a note. “It would be tough to finance without Xavier Neil relinquishing control. Sprint and anyone else with synergies should be able to outbid them.”
Like Iliad, whose deeply discounted subscriptions forced larger carriers to sacrifice profits to keep up, T-Mobile has roiled the U.S. wireless industry in the past two years. The Bellevue, Washington-based company, led by Chief Executive Officer John Legere, started a trend by offering no-contract plans, separating the cost of smartphones from payments for wireless service.
Legere, like Niel, has built a reputation as a maverick, taunting rivals on Twitter and once crashing an industry party held by bigger competitor AT&T Inc. Niel, whose holdings include the rights to the song “My Way,” introduced Iliad’s Free Mobile two years ago with a monthly fee that was less than half what larger competitors were charging. He is France’s fifth-wealthiest person, according to the Bloomberg Billionaires Index.
International, Domestic
T-Mobile needs more investment to compete with AT&T and Verizon Communications Inc., Legere said in an interview today before the report of the takeover offer was published.“We have two players that are significantly bigger than the others,” Legere said in an interview on Bloomberg Television with Emily Chang. “Little by little we are attacking them, but there are multiple things to consider.
‘‘If I really want to bring long-term competition and lead this entire industry, capital is important,’’ he said. ‘‘Various accelerants exist -- they exist internationally, they exist domestically.’’
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