- SoftBank ended its T-Mobile pursuit citing regulatory inflexibility.
- T-Mobile is still a buy, but potential upside is limited in the light of recent development.
- This event was anticipated in previous update on T-Mobile.
This round of consolidation in the U.S. telecommunication industry is ending in a rather anticlimactic way. First, Rupert Murdoch withdraws $80 billion bid for Time Warner Cable, and then Softbank (OTCPK:SFTBF) drops its bid to acquire T-Mobile (NYSE: TMUS). So, dynamics of the industry are not going to change after all. Sprint (NYSE: S) and T-Mobile will remain distant third and fourth players behind the two giants of the telecom industry. Sprint is abandoning its bid to acquire T-Mobile, and the announcement is expected on Wednesday. Strong regulatory resistance is cited as a reason to abandon the bid. Mr. Son, Softbank's founder, came to a decision over past few weeks that the bid was too risky, according to some sources. The deal had to clear not only antitrust review by the department of justice, but also a public interest vetting by the Federal Communications Commission. Moreover, FCC's intention to block combined spectrum bid was Softbank's cue to back out. So, Softbank did. T-Mobile and Sprint have not ruled out consolidation in future but the deal is not likely to be approved at this time, according to Reuters.
This development paves the way for French Iliad to acquire T-Mobile; the original bid was deemed low and rejected by T-Mobile officials. Now as Softbank is out of the scenario, bargaining power is tipped towards Iliad, and Deutsche Telekom (OTCPK:DTEGF) may not be able to get the price it wants. Iliad is already negotiating with potential partners to sweeten the original $15 billion, or $33/share, deal for 56.6% stake in T-Mobile.
From an investment perspective, T-Mobile is still a buy due to its acquisitive potential and subscriber momentum. Softbank news obviously limits the upside that was expected due to the merger or the breakup fee. A revised bid from Iliad may be in the range of $34-$39. Other bidders can also emerge. Moreover, subscriber momentum is going to drive the stock in upward direction. So, the bottom line is that Softbank's decision to abandon the bid limits potential upside in T-Mobile's valuation but the stock is still a buy amid acquisitive potential and subscriber momentum.
"Update: T-Mobile Earnings And Acquisition" anticipated Softbank's decision to back out.
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