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T-Mobile to buy Shentel's wireless biz, but the price isn't set

T-Mobile said it would purchase Shentel's wireless business, including its 1.1 million mobile customers, but the companies continue to bicker over the price of the transaction.

In a filing with the SEC, Shentel said that T-Mobile on Wednesday "delivered to the company notice exercising its option to purchase the assets of our wireless operations." T-Mobile also disclosed the action in its own SEC filing. The transaction doesn't come as a surprise considering T-Mobile had been widely expected to purchase Shentel following its acquisition of Sprint in April.

However, the deal between Shentel and T-Mobile – which stems from a complex, 21-year-old arrangement between Sprint and Shentel – isn't done.

Shentel is a Sprint affiliate. That means the company operates its own wireless network and retail operation, but it sells services under the Sprint brand. Sprint inked several such affiliate deals years ago to expand its wireless footprint without incurring the cost of new network builds. Over the years, Sprint acquired a number of its affiliates including Ubiquitel, iPCS and US Unwired, but Shentel is one of the few independent Sprint affiliates that remains standing.

As part of the affiliate agreement that Sprint and Shentel inked in 1999, any company that acquires Sprint also has the option to acquire Shentel's wireless business at 90% of the "entire business value." That's now the sticking point between Shentel and T-Mobile.

"The parties were not able to agree on certain terms for an effective appraisal of such assets," Shentel told the SEC of its negotiations with T-Mobile. "On August 24, 2020, the company delivered to T-Mobile a 'Notice of Dispute' relating to such appraisal framework and other contractual terms related to Sprint's acquisition of the assets of the company's wireless operations.

The filing states that if both companies don't settle the price dispute in 60 days, the transaction might go to arbitration. "The appraisal process could be subject to various other legal challenges that may also extend or affect the timeline set forth in the affiliate agreement," the filing warns.

The analysts at Wall Street research firm Raymond James explained that three independent appraisers will be appointed to handle valuations in the next 40 days. The firm said that, if all three appraisals are within 10% of each other, the average will be used; if only two appraisals are within 10%, the average of only those two appraisals will be used; if none of the appraisals are within 10% of each other, the middle appraisal will be used.

"Assuming the dispute finds a timely resolution, it clears a minor roadblock on the path to unlocking value at New T-Mobile [which is the company that arose from the merger of T-Mobile and Sprint]," wrote the Wall Street analysts at New Street Research in a brief note to investors Thursday morning.

And investment banker Michael Alcamo told Light Reading the deal is "not that surprising as T-Mobile's competitive drive hints at a desire to manage all aspects of its customer relationships. Shentel is known for high-quality customer service. Nonetheless, given T-Mobile's momentum and balance sheet ($11.1 billion in available cash), acquiring these important markets – and closing a sizable gap in the national corporate footprint – must have been irresistible."

Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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