T-Mobile to Buy SunCom for $2.4B

T-Mobile US Inc. announced plans to acquire SunCom Wireless Inc. for $2.4 billion in cash and assumed debt. The acquisition is the latest deal in the wave of consolidation rolling through the U.S. mobile market. (See T-Mobile Acquires SunCom.)

T-Mobile will pay $1.6 billion in cash and take on $800,000 of SunCom's net debt. SunCom's shareholders will get $27 per share.

The deal will expand T-Mobile's network coverage in the southeastern part of the U.S. and the Caribbean. SunCom operates GSM, GPRS, and EDGE networks in North Carolina, South Carolina, Tennessee, Georgia, Puerto Rico, and the U.S. Virgin Islands. The operator has provided roaming services to T-Mobile in these markets since 2004.

SunCom had 1.1 million customers at the end of the second quarter this year and revenues of $853 million for the full-year of 2006. (See SunCom Reports Q2.) SunCom is the latest regional wireless service provider to fall into the hands of a big U.S. operator as the U.S. mobile market continues to consolidate. In July, AT&T Inc. (NYSE: T) announced plans to acquire third-largest regional operator Dobson Communications Corp. (Nasdaq: DCEL) for $5.1 billion. In the same month, Verizon Wireless said it would buy Rural Cellular Corp. (Nasdaq: RCCC) for $2.7 billion. (See Verizon Ropes Rural Cellular , Verizon Has Marginal Concerns in Q2, and AT&T to Buy Dobson for $5.1B.)

Leap Wireless International Inc. (Nasdaq: LEAP) and MetroPCS Inc. (NYSE: PCS) may also find themselves in the sights of larger operators since Leap rejected MetroPCS's $7.5 billion acquisition offer over the weekend. (See Leap Rejects MetroPCS Bid, Leap to Consider MetroPCS Bid , MetroPCS's $7.5B Leap, and MetroPCS Eyes $1B IPO.)

For T-Mobile's parent Deutsche Telekom AG (NYSE: DT), the acquisition is in line with the M&A strategy that the German giant outlined in March this year. Deutsche Telekom CEO René Obermann said the operator was no longer ruling out international mobile acquisitions, including operators that are outside its footprint, and that there was potential for consolidation in markets where T-Mobile already operates. (See DT Plans M&A, IPTV Push, DT Outlines Strategy, and DT Plans Strategy Revamp.)

With the SunCom acquisition, T-Mobile estimates synergies with a net present value of $1 billion. The savings would come from reduced roaming and operating expenses.

The analyst team at Dresdner Kleinwort says the deal makes strategic and financial sense. "While the valuation looks high, this is on depressed and fast-growing earnings, and [Deutsche Telekom] believes the deal is EBITDA and cash-flow accretive in the first year," says the Dresdner team in a research note.

"This transaction is a good move for [Deutsche Telekom] both strategically and financially," according to the Dresdner analysts. "We note on the margin that it reaffirms [Deutsche Telekom's] commitment to T-Mobile USA, and should dampen expectations for a sale of the asset."

The acquisition is expected to close in the first half of 2008.

— Michelle Donegan, European Editor, Unstrung