So US operators won’t feel the disruptive impact of France’s Iliad after all. The company has withdrawn from the attempt to buy T-Mobile USA after a second bid was rebuffed, and TMO now needs to focus on being a strong player in its own right, free from the distracting M&A activity of recent years.
Since CEO John Legere took the helm, TMO has shown itself capable of being a disruptor too, though not to nearly the same degree as Iliad’s Free Mobile, which has changed the pricing norms of the French market completely and forced all the existing three cellcos to rethink their strategies radically.
However, the somewhat enticing prospect of an alliance between Legere and Iliad’s maverick boss Xavier Niel will not become reality, and TMO’s major shareholder, Deutsche Telekom, has indicated it will not make active efforts to sell its stake for the next year or so, at least. Under the terms of the merger of TMO with MetroPCS, which resulted in a new entity in which DT remained the biggest stakeholder, the German giant can only sell its holding to a single buyer. It had appeared eager to do this, in order to free up funds for expansion elsewhere and for debt reduction, but both Sprint and Iliad have now backed away, and DT has apparently had a change of heart.
There are other possible acquirers for TMO, notably Dish, but most analysts expect DT to take the company off the table for a while, aware of its improving fortunes, and wait for better offers in a couple of years’ time. Of course, given the high level of competition in the US, that may prove a poor gamble, but it will leave TMO free, at last, to pursue its own course without the constant shadow of a possible acquisition. Macquarie Capital analyst Kevin Smithen wrote in a client note that DT was unlikely to agree to TMO sale “given TMO’s current momentum and potential for other, better capitalized bidders down the road. In our opinion, investors should NOT own T-Mo for any M&A over at least the next two years.”
Sprint decided not to pursue acquisition plans because of likely opposition from the US antitrust authorities, while Iliad has seen two offers turned down. Iliad announced in a statement on Monday that it had “discontinued” its courtshipbecause Deutsche Telekom and T-Mobile “refused to entertain” its offer. Its initial bid, made in July, offered $15bn for a 56.6% stake, valuing the carrier at $33 a share, which DT dismissed as too low.
Iliad then “put in place a consortium with two leading private equity funds and Tier-1 international banks” and came back with an improved offer which included more cash and valued TMO at about $36 per share, according to Reuters reports. The French firm also wanted a bigger stake, of 67%. But this proposal was also rejected.
“Iliad had the ambition to accelerate T-Mobile US’s transformation, notably by saving more than $2bn of cost annually,” said the company. “This transaction would have created significant value for both Iliad’s and T-Mobile US’ shareholders.”
However, Legere will be positive about the news. The cellco said August was its best ever month for subscriber additions in the postpaid sector – the most important for profitability and the segment where TMO has been weakest in recent years. Earlier this month, Legere dismissed of the latest M&A rumors as “craziness” and said he was “sick and tired” of the speculation. He said his company had a good chance to grow organically and that employees still had “post-traumatic stress disorder” from the failed AT&T attempt to take over TMO.
Legere’s profanity-strewn tirade, which included personal attacks on Niel, may have sounded desperate, but the outspoken CEO has strong performance, especially from his ‘Uncarrier’ strategies, and Wall Street support behind him. “They’re doing a really nice job competing against the incumbent carriers right now,” Michael Bowen, an analyst at Pacific Crest Securities, told Bloomberg. “Their offers are resonating with subscribers, and I think they’re better off independent at this point.”
T-Mobile has projected that it will add between 3m and 3.5m monthly subscribers this year and it recorded its first profit for five quarters in Q214, though it was helped by a $731m gain from a spectrum transaction.