Sprint's Japanese owner cost itself a ton of money dragging its feet on the blockbuster T-Mobile merger

pulse

April 30, 2018 3:01 PM

Sprint's parent company, SoftBank, was the major holdup during talks late last year, according to The Wall Street Journal — and it was its capitulation that helped deal finally get done.

T-Mobile and Sprint on Sunday
The agreement comes after years of on-again, off-again negotiations.
Sprint's parent company, SoftBank, was the major holdup during talks late last year, and the capitulation of CEO Masayoshi Son was seen as instrumental in getting a deal done.
By waiting, SoftBank wound up getting a worse deal than it would've last year — more than $4 billion worse at current valuations.

When T-Mobile and Sprint finally agreed over the weekend to a blockbuster merger, it marked the end of a yearslong courtship with countless hours of negotiation.

But it could've been a much better deal for Sprint's parent company, SoftBank, if only the Japanese telecom giant had been less stubborn during talks in October.

Back then, discussions broke down amid disagreement over who would hold the largest stake in the new company, The Wall Street Journal reported at the time.The sticking point was said to be SoftBank CEO Masayoshi Son, who staunchly insisted that his firm retain control of Sprint. At the time, he even went as far as to celebrate the deal's collapse.

Son has since capitulated, and a new Journal report suggests he may have been coaxed to give up control amid mounting pressure on Sprint to roll out 5G technology.

But the damage has been done. If a deal with the same terms had been approved in October, Sprint shareholders would've held 30% of the new entity, compared with just 27% outlined in the new agreement. When applied to the $146 billion value of the combined company, that's a difference of $4.4 billion.

On a percentage basis, it comes out to a 10% difference when you consider that since talks ended last year, Sprint has fallen 7%, and T-Mobile has climbed 3%.

As if SoftBank's costly stubbornness isn't enough of an overhang, the merger faces a tough slog in seeking approval from antitrust regulators. After all, the Trump administration has already put AT&T's proposed mega-acquisition of Time Warner through the wringer.

It's clear that investors are worried, with Sprint's stock plummeting more than 10% in premarket trading on Monday. The deep losses are uncharacteristic of a takeover target, considering they normally rise after a merger announcement.

The biggest hurdle for Sprint and T-Mobile from a regulatory perspective will be convincing the Justice Department that a merger won't be detrimental to competition in the industry. That could be a tall task, as the department rejected a proposal to combine the firms in 2014.

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