Now that T-Mobile has finally, officially closed its acquisition of Sprint, the company is moving forward with a variety of strategic initiatives. One of those will likely be the purchase of Shentel's 1.1 million wireless customers across parts of Virginia, West Virginia, Maryland and Pennsylvania.
Shentel, a longtime Sprint affiliate that operates its own wireless network and sells services under the Sprint brand, disclosed this week that it has begun negotiating with T-Mobile on the topic. The Wall Street analysts at research and consulting firm B. Riley FBR speculated in a Wednesday note to investors that T-Mobile will likely agree to purchase Shentel's wireless business for an 8.5x multiple, which the analysts said would yield Shentel after-tax proceeds of $29 per share.
The development does not come as much of a surprise. Shentel officials have routinely discussed the effect that the merger of Sprint and T-Mobile would have on their company, noting they would embark on negotiations with T-Mobile if that company did manage to close its merger with Sprint.
The Wall Street analysts at Raymond James explained that the negotiations between T-Mobile and Shentel are in part prescribed in Shentel's affiliate agreement with Sprint. The analysts said T-Mobile basically has four options when it comes to Shentel:
- For the next three months the companies are to negotiate the possibility of Shentel becoming an affiliate of T-Mobile.
- If the companies don't reach that kind of agreement, T-Mobile would then have another two months to purchase Shentel's wireless business at 90% of the "entire business value," based on separate appraisals by the two companies.
- If T-Mobile does purchase Shentel's wireless business, Shentel then has another two months to decide if it wants to purchase T-Mobile's legacy network and subscribers in its service area.
- Finally, if neither company decides to purchase the other's network and customers, then – based on Shentel's original affiliate agreement with Sprint – T-Mobile would have to sell or decommission its legacy Sprint network and customers in the Shentel service area.
"We are glad to see the negotiations between Shenandoah and T-Mobile begin, and expect T-Mobile will want to work through the process quickly," the Raymond James analysts wrote in a note to investors on Tuesday.
The analysts at B. Riley FBR pointed out that there is one other major factor complicating negotiations between T-Mobile and Shentel: The ongoing roaming dispute between Sprint and Shentel. That dispute started in 2019, and involves the "travel fee" that's renegotiated between the companies every three years. The rate essentially sets the cost that each operator pays the other when their customers travel from one network onto the other.
The B. Riley FBR noted that fully $16.5 million is at stake in the dispute, and that "we do see some uncertainty around this cash flow benefit going forward."
One final item in the negotiations is Shentel's new $20 million plan to build out a fixed wireless service. That effort likely would dovetail with T-Mobile's own fixed wireless plans.