Sprint, SoftBank Said to Be in Informal Talks for T-Mobile Merger

Sprint has started preliminary conversations to merge with T-Mobile, the latest attempt to consolidate in a market watched closely by US regulators, according to people familiar with the matter.

Executives of both SoftBank, Sprint's largest shareholder, and Sprint itself have had informal contact with T-Mobile owner Deutsche Telekom about a transaction, said the people, who asked not to be identified because the discussions are private. Merger talks in the wireless industry had been on hold for almost a year because of a government spectrum auction that required participants to avoid negotiating deals with each other until April 27.

SoftBank Chairman Masayoshi Son and Deutsche Telekom Chief Executive Officer Tim Hoettges separately told investors this week they'd be open to discussions about consolidation.

Banks haven't been formally hired, although financial firms are jockeying for roles if a deal comes together, the people familiar with the matter said. Representatives for Sprint, SoftBank, T-Mobile and Deutsche Telekom, which owns about 65 percent of T-Mobile, declined to comment.

Deutsche Telekom gained 3.7 percent to 17.34 euros at 12:50pm in Frankfurt after earlier gaining as much as 4 percent, the biggest intraday gain since June.

A Sprint merger with T-Mobile comes fraught with regulatory risk and won't be easy to structure. Sprint had been interested in acquiring T-Mobile in 2014, though the deal fell apart on regulatory concerns. Since then, T-Mobile's market valuation has soared to $55 billion (roughly Rs. 3,52,405 crores) - about $23 billion more than Sprint's. A merger proposal would be a major test of the Trump administration's attitudes to telecommunications mergers at a time when it's already weighing AT&T's $85.4 billion purchase of Time Warner.

Although it's now larger, it's unclear if T-Mobile has the desire to be the acquirer in any deal since Sprint has struggled to retain customers even after offering the industry's cheapest unlimited data plans. Sprint is languishing in fourth place in the US wireless market.

In addition to T-Mobile, Sprint also believes it could receive overtures from cable companies, such as Comcast, Charter Communications and Altice, which have expressed an interest in the US wireless market, people with knowledge of the matter said last month. Comcast and Charter recently agreed to work together on any deal with a wireless carrier for the next year, making a Sprint sale to a cable company more complicated.

Any deal involving T-Mobile would need the backing of its controlling shareholder Deutsche Telekom. T-Mobile has become the main earnings and growth driver for the German parent in recent years, transforming from a unit Hoettges tried to sell into one he has called a "kingmaker asset."

© 2017 Bloomberg L.P.