Sprint, SoftBank in informal merger talks with T-Mobile

Shoppers walk through the lobby of a T-Mobile US Inc. store in Chicago, Illinois, U.S., on Friday, Oct. 21, 2016. T-Mobile US Inc. is scheduled to release earnings figures on October 24. Photographer: Daniel Acker/Bloomberg

Sprint Corp. has started preliminary conversations to merge with T-Mobile US Inc., the latest attempt to consolidate in a market watched closely by U.S. regulators, according to people familiar with the matter.

Executives of both SoftBank Group Corp., Sprint’s largest shareholder, and Sprint itself have had informal contact with T-Mobile owner Deutsche Telekom AG about a transaction, said the people, who asked not to be identified because the discussions are private. Merger talks in the wireless industry had been on hold for almost a year because of a government spectrum auction that required participants to avoid negotiating deals with each other until April 27.

SoftBank Chairman Masayoshi Son and Deutsche Telekom Chief Executive Officer Tim Hoettges separately told investors this week they’d be open to discussions about consolidation.

Banks haven’t been formally hired, although financial firms are jockeying for roles if a deal comes together, the people familiar with the matter said. Representatives for Sprint, SoftBank, T-Mobile and Deutsche Telekom, which owns about 65 percent of T-Mobile, declined to comment.

Deutsche Telekom gained 3.7 percent to 17.34 euros at 12:50 p.m. in Frankfurt after earlier gaining as much as 4 percent, the biggest intraday gain since June.

A Sprint merger with T-Mobile comes fraught with regulatory risk and won’t be easy to structure. Sprint had been interested in acquiring T-Mobile in 2014, though the deal fell apart on regulatory concerns. Since then, T-Mobile’s market valuation has soared to $55 billion — about $23 billion more than Sprint’s. A merger proposal would be a major test of the Trump administration’s attitudes to telecommunications mergers at a time when it’s already weighing AT&T Inc.’s $85.4 billion purchase of Time Warner Inc.

Although it’s now larger, it’s unclear if T-Mobile has the desire to be the acquirer in any deal since Sprint has struggled to retain customers even after offering the industry’s cheapest unlimited data plans. Sprint is languishing in fourth place in the U.S. wireless market.

In addition to T-Mobile, Sprint also believes it could receive overtures from cable companies, such as Comcast Corp., Charter Communications Inc. and Altice NV, which have expressed an interest in the U.S. wireless market, people with knowledge of the matter said last month. Comcast and Charter recently agreed to work together on any deal with a wireless carrier for the next year, making a Sprint sale to a cable company more complicated.

Any deal involving T-Mobile would need the backing of its controlling shareholder Deutsche Telekom. T-Mobile has become the main earnings and growth driver for the German parent in recent years, transforming from a unit Hoettges tried to sell into one he has called a “ kingmaker asset.”

Also read:

SoftBank keen to talk about a deal for US wireless carrier Sprint

Softbank unit Sprint exploring deal options beyond T-Mobile to unleash value

Bloomberg