Sprint, T-Mobile Said to Hash Out Terms to Bring Deal Closer

Sprint and T-Mobile US, in preliminary deal talks since at least August, agreed that Deutsche Telekom would have control in a combination of the two companies, said a person with direct knowledge of the matter.

The mobile operators are discussing a stock-for-stock merger, though are still weeks away from an agreement, according to a source, who asked not to be identified. Sprint hasn’t performed due diligence yet, and both companies declined to comment.

Deutsche Telekom would put T-Mobile executives, led by Chief Executive Officer John Legere, in charge of the combined company, the person said. That’s important for the German carrier, which owns about 64 percent of T-Mobile and has come to rely on it as a key driver of sales and earnings growth, according to a second person familiar with the talks. It favors a deal with Sprint because potential savings could come relatively quickly, the person said.

The idea of a combination between the No. 3 and No. 4 carriers was shot down by regulators in 2014, but with a new administration preliminary discussions picked up earlier this year. Washington regulators appointed by President Donald Trump haven’t signaled an insistence on maintaining a four-player nationwide wireless market that was a feature of the preceding administration.

“It is clearly much more feasible than it would have been under a Democrat regime, but that’s not saying very much,” Craig Moffett, analyst at MoffettNathanson in New York, said in an email. He put the odds of approval at 50/50.

T-Mobile shares rose as much as 5 percent to $64.87, the biggest intraday gain since Feb. 17. Sprint climbed as much as 10 percent to $8.45, the most since Aug. 1. CNBC reported Tuesday details of the Sprint and T-Mobile talks.

Sprint has posted losses for a decade, even after SoftBank bought control in 2013 and returned the company to subscriber growth. As of June 30, the mobile operator had more than $12 billion in debt coming due in the next three fiscal years, putting pressure on Softbank, led by billionaire Masayoshi Son, to find a partner.

Executives at Sprint and T-Mobile have said publicly that a merger makes sense because it would create a bigger wireless carrier to take on larger rivals AT&T and Verizon Communications. Even combined, Sprint and T-Mobile would be smaller in subscriber size than the industry leaders.

The Justice Department’s horizontal merger guidelines paint “a reasonably bleak picture,” in part because the wireless industry fits the definition of being highly concentrated, Moffett said. The Federal Communications Commission, which also would judge the deal, may not view a three-player market as competitive, Moffett said.

Speaking to investors over the past few months, executives from both Sprint and T-Mobile have lauded a potential merger of the two companies as offering substantial cost savings and creating stronger third competitor.

“Scale matters in this industry,” Chief Operating Officer Mike Sievert said at a conference in May. “We’re here to create value, we’ve shown you a value-creation case as a standalone, and the rational question for us all to be asking is: Can we turbocharge that in a way that’s advantageous for our shareholders?”

The mobile operators restarted discussions last month after Sprint’s exclusive negotiating period with Comcast and Charter Communications expired at the end of July, people familiar with the situation told Bloomberg in early August.