Saturday, May 10, 2014

T-Mobile Wants Breakup Fee, Brand Name and Management Continuity as Part of Sprint Acquisition Bid

T-Mobile US reportedly wants a $1 billion breakup fee in case any proposed Sprint acquisition of T-Mobile US were to fail to gain regulatory approval. Obviously learning from the damage caused by the failed AT&T effort to buy T-Mobile USA, T-Mobile US also wants assurances its brand and some of its management team would remain after a merger.

The latter rules--keeping the T-Mobile US brand in play--would seem an effort to avoid the damage T-Mobile US sustained while the AT&T acquisition bid remained in regulatory review. In practical terms, it means T-Mobile US would keep up its marketing focus during any review process.

Such a provision would shift nearly all the risk of an ultimately-rejected acquisition to Sprint. Ironically, an eventual Sprint bid for T-Mobile US might occur at a point where T-Mobile US has leapt ahead of Sprint, currently the third-biggest national mobile provider, in terms of market share.

In a year or so, T-Mobile US is likely to have displaced Sprint as the number-three U.S. mobile company, in terms of subscribers. In that event, the number-four carrier would try to buy the number-three carrier.

Also, somewhat unusually, the leadership of the new company likely would come from the acquired firm.

Eventually, one of the two firms will be absorbed, and possibly both, by some other entity, even if no effort is mounted to merger Sprint and T-Mobile US immediately, or in a year or two.

In fact, Sprint is likely to become the most disadvantaged bidder in upcoming 600-MHz spectrum auctions.

Both AT&T and Verizon have the financial strength to prevail in the auctions. T-Mobile US is likely the biggest beneficiary of bid rules favoring smaller carriers.

Sprint does not have the financial firepower of AT&T and Verizon, but likely will be barred from bidding against T-Mobile US for the reserved spectrum.

Time and tide might not be running in Sprint’s favor.

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