Soon-to-be-hitched T-Mobile and Sprint have quickly renegotiated the terms of their pending merger to leave Deutsche Telekom with a bigger stake in the combined company, following a decline in Sprint's performance in the past couple of years since their deal was first announced.
The revised terms will give Deutsche Telekom, T-Mobile's parent, a 43% stake in the combined company, up from 42% previously. The stake held by Japan's SoftBank, which owns Sprint, will drop from 27% to 24%, leaving public shareholders with the remaining 33%.
That will happen as SoftBank exchanges 11 of its Sprint shares for each T-Mobile share, up from an exchange ratio of 9.75 originally, with SoftBank now agreeing to surrender about 48.8 million T-Mobile shares as soon as the deal closes.
T-Mobile says it will re-issue these surrendered shares to SoftBank if the new-look business achieves certain "stock price milestones" during a specified measurement period.
Sprint's share price has nearly doubled since February 10, to $9.48 at close of business on February 20, thanks to growing optimism about the likelihood of a deal. In the preceding two years, however, the share price lost 9% of its value, while T-Mobile's rose 45%. Since February 10, T-Mobile shares have gained another 18%, closing at $99.50 on February 20.
The renegotiation comes after the companies overcame one of the final remaining hurdles to their tie-up earlier this month, when a top US judge raised no objections to the merger, indicating that Sprint might go bankrupt if it did not happen.
The merging parties still need to secure the approval of Californian authorities and show they are not in breach of the Tunney Act, which lays out various antitrust rules, said Deutsche Telekom CEO Timotheus Höttges during a press conference earlier this week. Assuming the agreement clears those hurdles, T-Mobile and Sprint expect to complete their merger by April 1.
The long-mooted combination would produce an operator with about 140 million customers, putting it on an even footing with AT&T and Verizon, its big rivals. T-Mobile and Sprint say this creation of a stronger competitor will reinvigorate competition in the US mobile market and help to speed up the deployment of a nationwide 5G network.
For T-Mobile, the deal is crucial because of Sprint's vast spectrum holdings, which are needed to provide higher-speed mobile connections. Sprint, meanwhile, has failed to halt its decline despite SoftBank's support and now stands a better chance as part of a more successful brand.
Höttges this week drew attention to the opportunity for investors in the new-look entity. "The new T-Mobile would today have a market cap of $120 billion," he told reporters. "That is a difference between us and AT&T or Verizon of around $120 billion and we have just as many customers and twice as much spectrum."
He also denied that Deutsche Telekom would have to prop up the new business financially after John Legere, T-Mobile's departing CEO, previously said it would invest about $40 billion in the rollout of a new 5G network.
"Let me be clear and say this is a self-funding deal and that deal will be funded by America from within America," said Höttges. "Our net debt will rise but we will benefit from it big time with $42 billion in synergies. Money from Germany and Europe will not go to implement this transaction."
John Legere, who is to make way as CEO for Mike Sievert, currently president and chief operating officer, could not resist another poke at AT&T and Verizon in his statement on the revised agreement.
"We are now on the threshold of achieving our goal," he said. "And did I mention how fun it's going to be sticking it to Dumb, Dumber and Big Cable along the way? This is going to be epic!"
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— Iain Morris, International Editor, Light Reading