Even with the more relaxed approach to large mergers, which many expect from the current US administration, the much-rumored plan for Sprint and T-Mobile USA to join forces would still be a tough one to get past antitrust regulators without major concessions. Masayoshi Son, chairman of Sprint’s parent Softbank, is said to be exploring other options, including short term investments from Liberty Global or even super-investor Warren Buffett, according to The Wall Street Journal.
The Journal reported that Son had met separately with both Buffett and with Liberty’s billionaire chairman John Malone, at an annual gathering of CEOs in Sun Valley, Idaho. One option, unnamed sources said, would be to have Buffett’s Berkshire Investments injecting over $10bn in cash into Sprint – though the sources cautioned that the talks were “at an early stage and may not result in an agreement”.
An investment of $10bn would represent about 23% of Sprint if it were done with common equity at the current price levels.
Son will be eyeing sources of cash for Sprint because the US MNO carriers about $41bn in gross debt, with much of that coming due within the next few years, and its cash shortage has clipped its wings in being able to carry out its ambitious plans for network transformation, and densification to harness one of its key advantages, its plentiful 2.5 GHz spectrum.
Jennifer Fritzsche, an analyst with Wells Fargo, wrote in a client note: “In our view, SoftBank is doing exactly what it should be doing—have multiple conversations with multiple parties. With Qualcomm’s clear support of 2.5 GHz spectrum as part of the 5G standard, the role this spectrum will play in a 5G world is becoming more clear and not debatable in our opinion. So the timing seems indeed right to engage such discussions.”
Investments from billionaires – even those as habitually technology-shy as Buffett – may not preclude a deal with TMO down the track. They could even pave the way by making Sprint more attractive. However, Craig Moffett of MoffettNathanson Research is one analyst who is sceptical about a marriage between the third and fourth US MNOs. He wrote: “Unless an equity infusion in Sprint can be done at well below the current market, diluting current equity holders, Warren Buffett and John Malone would effectively be underwriting all of the risk that the merger would be rejected (and the synergies therefore lost).”
He added: “Simultaneously solving the three-headed monster of relative valuation, total valuation and leverage, in a world where merger approval is highly uncertain, is a triple bank shot.”