COMPANIES’ OVERVIEW
T-Mobile
T-Mobile USA Inc., a Delaware corporation, was formed in 1994 under the name VoiceStream Wireless PCS, a subsidiary of Western Wireless Corporation. VoiceStream was spun off from Western Wireless in 1999, acquired by Deutsche Telekom AG in 2001 and renamed T-Mobile USA in 2002.
In 2013, T-Mobile USA acquired MetroPCS Communications, Inc. The business combination was accounted for as a reverse acquisition with T-Mobile USA as the acquirer, resulting in T-Mobile going public on the NASDAQ stock exchange.
T-Mobile USA, commonly T-Mobile, is an American wireless network operator which provides wireless services to 86 million post-paid, prepaid and wholesale customers. It generates revenue by creating affordable wireless communications services to these customers, in addition to a wide selection of wireless devices and accessories through an Un-carrier strategy (it is the third-largest phone provider in the US). In December 2019, T-Mobile launched America’s first nationwide 5G network covering more than 200 million people and more than 5,000 cities and towns across the United States with 5G.
Before the deal, the ownership structure was set by the German telecommunications company Deutsche Telekom with a 63% ownership. T-Mobile joined the S&P 500 on July 15, 2019.
Sprint
Sprint Corporation is a Kansas-based holding company for wired telecommunications services. Before its acquisition by T-Mobile, it was the fourth-largest mobile network operator in the US and served 54.3 million customers across post-paid, prepaid, wholesale and affiliate platforms, of which more than 31 million were post-paid retail customers. The company also offered wireless voice, messaging and broadband services through its various subsidiary brands.
The history of the firm trace back to the founding of Brown Telephone Company in 1899, its modern name stems largely from the merger of South Pacific Communications and General Telephone & Electric Corporation in 1982, leading to the formation of GTE Sprint and, later, Sprint Corporation, under the control of United Telecommunications. In 2005, Sprint Corporation and Nextel Communications merged to form Sprint Nextel Corporation.
In July 2013, a majority stake of the company was purchased by the telecommunications company SoftBank, the Japanese conglomerate and Sprint’s controlling shareholder, that led to the closing of the Nextel operations and a return to the Sprint Corporation name. Before T-Mobile’s acquisition, SoftBank held an 80 per cent share of Sprint Corporation. The IPO of the company took place on July 19, 2013.
INDUSTRY OVERVIEW
The wireless telecommunications services industry comprises companies that aim at easing mobile communications and data management, by developing software, manufacturing devices and equipment, building infrastructure, and providing services to the fast-expanding wireless sector. The services include mostly the wireless movements of voice, text, video and are used in diverse industry verticals such as residential, business, education, and government organizations. The related market is expected to grow at around 5% CAGR until 2022.
Global industry revenues topped $1 trillion in 2018 and are expected to reach $1.14 trillion by 2025 (GSMA Intelligence estimates). Mobile connections worldwide total about 7.9 billion. Top countries by wireless subscriptions include China, India, Indonesia, the United States, and Brazil (International Telecommunication Union estimates).
This industry knows a rapid pace of change and fierce competition since wireless telecommunications service providers compete intensively to attract subscribers from other providers to enhance revenue growth. Many players sell to a concentrated number of carriers and manufacturers. Therefore, large buyers enjoy strong bargaining power over smaller sellers.
Major companies include AT&T with 141 million subscribers and Verizon with 150 million subscribers. Other major players include América Móvil (Mexico), China Mobile Communications Corporation (China), Deutsche Telekom (Germany), Nippon Telegraph and Telephone Corporation (Japan), SoftBank Group Corp (Japan), Telefonica (Spain), and Vodafone Group (UK).
5G brings faster-than-broadband speeds through the air. Global 5G network infrastructure revenues are expected to be $4.2 billion in 2020, a YoY growth of 89% (Gartner estimates). Although T-Mobile is among the leaders in 5G and has held this position for a long time, AT&T and Verizon have also started to develop their 5G networks.
This deal is mostly related to the United States’ wireless telecommunications services market, which includes around 16,000 establishments (single-location companies and units of multi-location companies) and with combined annual revenue that exceed US$265 billion.
The wireless telecommunications industry has changed dramatically during the past years. Indeed, AT&T and Verizon have advanced beyond traditional wireless and are pushing the industry towards new edges. AT&T, the industry leader in innovation, is combining its wireless operation with wireline and going forward with Warner Media, AT&T TV, HBO Max, and others. Verizon Wireless is also expanding into this market with FiOS pay-TV for instance.
DEAL DRIVERS
After almost two years of waiting, T-Mobile and Sprint, the third and fourth operators in the national wireless sector – have merged. The reason why these two companies have been chasing each other for so long is simple: the two main competitors – Verizon and AT&T – are much bigger than both. The merger would have created a stronger contender capable of withstanding the competition. As T-Mobile CEO Mike Sievert said, in the world we live in, having a reliable network has become increasingly vital. The importance of a national 5G network is critical to the society we are building. T-Mobile and Sprint’s combined assets will restart their 5G ambitions by bringing lightning speed to both urban and underserved rural communities, pushing the industry towards next-generation technology. Through this merger, the New T-Mobile will offer real value to wireless and home broadband customers with better service at lower prices. The combined company’s scale and financial strength will result in a planned investment of $40 billion in its network, business and other areas over the next three years. The synergies achieved through integration have the potential to unlock a massive scale and release at least $43 billion in shareholder value.
DEAL STRUCTURE
Wednesday 1/04/2020, T-Mobile announced to have completed its $31,5bn merger with Sprint corporation, after more than two years of contacts, to create the New T-Mobile. The New T-Mobile will continue to trade on NASDAQ under the symbol “TMUS”, whereas Sprint shares will be delisted from NYSE.
Initially, in 2018, the all-share deal provided an exchange ratio of 0.10256 T-Mobile shares for a share of Sprint. The company would have seen as shareholders Deutsche Telekom (42%), Softbank (27%) and public shareholders (31%).
According to the new deal terms, signed the 1st of April, the exchange ratio remained the same, but SoftBank had to surrender 48.8 million shares of T-Mobile, that it would have received once the merger completed, thus reducing the effective exchange ratio for the Japanese bank to 0,0909 and its ownership to 24%. To compensate for the lower price, Softbank obtained in the new deal to be able to get back the 48.8 million extra shares sold if T-Mobile reaches defined price targets, that is, $150 per share two years after the agreement is closed and 160 dollars per share in the fifth year since closing. To pursue the merge T-Mobile issued on the market 421,48 million shares (among those there are the 48,8 million shares surrendered by Softbank, deducted for the market value computation) with a market value of $31,5bn priced at $84,63 per share.
One last important component of the merger is Debt financing.
To close the deal, T-Mobile needed to repay both $8bn debt (half of which toward Deutsche Telekom) and $10bn of Sprint’s debt. To do so, on 31/03/2020 T-Mobile announced that it had issued $23bn to close the deal. The financing package was provided by a pool of 16 banks, and was structured with:
– $19bn bridge loan, which will be refinanced afterwards by investment-grade bonds
– $4bn seven years term loan
The 3rd of April T-Mobile issued $19bn of senior secured notes to repay the bridge loan. While T-Mobile is junk-rated by S&P and Moody’s, the bond received an investment opinion and the notes have a first priority pledge on all tangible and intangible asset of T-Mobile. The borrowing will cost roughly $750m a year in interest with maturity between 5 and 30 years.
The Raine Group, J.P. Morgan and Centerview acted as financial advisors for Sprint. PJT, Goldman Sachs, Deutsche Bank and Evercore advised T-Mobile and Deutsche Telekom.
Sources and References: WSJ, T-Mobile, Zephyr platform, Statista, Marketers Media, CNN, Deloitte, Value Line, RCR Wireless, NY Times, NPR
To contact the authors:
Paolo Assemberg: Paolo.assemberg@studbocconi.it
Théodore De Charsonville: Théodore.decharsonville@ studbocconi.it
Andrea Gaffuri: Andrea.gaffuri @studbocconi.it
Aymeric Pardo: Aymeric.pardo @studbocconi.it
Edoardo Zanetta: Edoardo.zanetta @studbocconi.it
Bocconi Students M&A Circle 
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