T-Mobile US Inc. may have found a way to salvage its takeover of Sprint Corp., but it comes at a cost, and leaves one to wonder whether its single-minded focus on sealing the deal is clouding its judgment. It certainly wouldn’t be the first company to let that happen in M&A.
T-Mobile is in talks to sell assets, including wireless spectrum and Sprint’s Boost Mobile prepaid brand, to satellite-TV provider and known spectrum-hoarder Dish Network Corp. for at least $6 billion, Bloomberg News reported Tuesday, citing people familiar with the matter. This is being done in an effort to appease the U.S. Department of Justice, which is concerned about the impact that T-Mobile’s $59 billion acquisition of Sprint will have on consumers’ wallets.
The DOJ is said to want T-Mobile to lay the foundation for the emergence of a viable No. 4 competitor in the U.S. wireless market to help fill the hole that buying Sprint would leave behind. Dish could, in theory, be that new fourth competitor, and that’s likely the motivation behind the reported arrangement. But given the strategic needs of all involved, the logic of this workaround is puzzling.
Let’s start with Dish. While it doesn’t have a wireless network, it already owns lots of mid-band spectrum licenses. These valuable assets have underpinned the company’s $18 billion market capitalization, even as its core satellite-TV business has lost droves of subscribers. Charlie Ergen, the billionaire chairman of Dish, has vaguely laid out plans for using the company’s spectrum to build a nationwide network to service the “internet of things,” ostensibly a step toward later launching a 5G network. Despite what he says, many investors and analysts have expected (or hoped) to see Ergen just sell the spectrum, rather than spending years entangled in a costly network build-out and as a latecomer to the 5G race at that.
In any case, the last thing Dish would seem to need is more spectrum. Taking on Boost’s prepaid customers also wouldn’t seem to give Dish much of a leg up in the wireless space, and their bases don’t really overlap. What Dish does need is a partner with the ability to help build its network. If the Sprint deal were to collapse, T-Mobile could be said partner. (After all, Dish has been one of the biggest opponents of the T-Mobile-Sprint merger, at least until now it seems.) Or what about Amazon?
A couple of years ago, Ergen reportedly discussed a partnership of sorts with Amazon.com Inc. – and that has to make T-Mobile a little nervous. It’s hard to see how buying Sprint and potentially providing an entry point for Amazon is a better outcome for T-Mobile than the status quo of competing with Sprint, a far weaker rival. Gaining Sprint’s spectrum is also one of the biggest reasons for doing the merger in the first place, so it’s surprising that T-Mobile is willing to divest some of it. And a forced seller isn’t known to get the best price.
This is why I wrote last week that it wouldn’t be a surprise if at this point T-Mobile decided to walk away from the deal, on account of disagreeable concessions and a lawsuit by a group of state attorneys general seeking to block the transaction. It may not be a stretch to think that may have been part of the DOJ’s angle in pushing for such divestitures. But if the DOJ and T-Mobile can come to this simple of an agreement – sell spectrum and Boost – then I’m left with two questions: Were regulators really not taking a hard line? Or are executives at T-Mobile and its German parent company, Deutsche Telekom AG, so resolved to get the merger done that they’ll do it even if the merits are spoiled in the process?
Craig Moffett, an analyst at MoffettNathanson LLC, put it this way in a note to clients on Monday: “At the end of the day, a bad deal is worse than no deal at all.” That’s true – unless you’re Sprint, in which case no deal is the worst outcome. But T-Mobile shouldn’t feel that same desperation.
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Tara Lachapelle is a Bloomberg Opinion columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.
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