T-Mobile US Inc is a wireless communications provider that offers wireless broadband mobile services under the T-Mobile and MetroPCS brands in the United States, Puerto Rico and the U.S. Virgin Islands.
With FCC/DOJ regulators strongly suggesting they'll oppose any attempt by Sprint (S +3.1%) to merge with T-Mobile USA (TMUS +3.6%), SoftBank's (SFTBF, SFTBY) Masayoshi Son "plans to appeal directly to the U.S. business community and policy makers" to convince them the deal would be good for customers, the WSJ reports.
Crucial to Son's effort: Convincing his audience Verizon and AT&T currently have a de facto U.S. mobile duopoly, one that Sprint and T-Mobile can't challenge independently.
Likely to hurt his cause: T-Mobile is now rapidly adding postpaid subs (after losing them for years) with the help of innovative pricing schemes, and regulators reportedly fear a Sprint merger could affect T-Mobile's "maverick" status within the industry.
Sprint and T-Mobile are both outperforming today. Son plans to make a major presentation on March 11 at the Chamber of Commerce in Washington D.C.
After opening near breakeven following its Q4 report, T-Mobile USA (TMUS -6.1%) has gradually sold off.
The #4 U.S. carrier, which halted years of postpaid sub losses last year with the help of the iPhone and aggressive/novel subscription plans, expects to add 2M-3M branded postpaid subs in 2014, compared with 2M in 2013. Cash capex is expected to grow to $4.3B-$4.6B from 2013's $4.2B, and adjusted EBITDA (-17% Y/Y in 2013) to $5.7B-$6B from 2013's $5.3B.
As announced on Jan. 8, T-Mobile added 1.645M total subs, 869K branded postpaid subs, and 112K branded prepaid subs in Q4.
"Simple free cash flow" (adjusted EBITDA - cash capex) rose 79% Y/Y to $357M, and totaled $1.08B for the whole of 2013 (-59% Y/Y). ARPU fell 2.9% Q/Q to $50.70.
In addition to establishing a BlackBerry position, Dan Loeb's Third Point LLC took a 600K-share stake in Baidu (BIDU), a 7.6M-share stake in T-Mobile USA (TMUS) and a 1M-share stake in NXP (NXPI) during Q4. At current levels, the positions are respectively worth $100M, $237M, and $56M. NXPI +1% AH.
On the other hand, Loeb unloaded the 4.4M-share Tibco (TIBX) position he had at the end of Q3. There were hopes Loeb would use his Tibco stake to push for a spinoff of the company's faster-growing Business Optimization unit. TIBX -1.7% AH.
Loeb also cut his remaining Yahoo (YHOO) position in half to 8M shares. Third Point once had a 60M-share stake in Yahoo, before striking a deal last August to sell 40M shares back to the company and leave its board.
Deutsche's Brett Feldman has upgraded Sprint (S +1.4%) to Buy following yesterday's Q4 report, albeit while leaving his PT unchanged at $9.25. He cites Sprint's spectrum advantage (presumably a reference to its high-frequency assets following the Clearwire deal), and the carrier's 2-year EBITDA growth outlook.
However, Feldman still expects major subscriber losses in 1H14, followed by "a return to modest growth" once Sprint's Network Vision 4G initiative is finished. He's also skeptical a T-Mobile USA (TMUS +0.4%) deal will happen in light of regulatory concerns.
But while regulators continue signaling their skepticism, SoftBank's (SFTBF) Masayoshi Son appears undeterred in his quest to merge the #3 and #4 U.S. U.S. mobile carriers. Son tells the WSJit would be "a dream within a dream" to challenge Verizon and AT&T without the scale provided by an acquisition. "I can't settle for No. 3 or No.2. It's my personality."
Recent WSJ and Bloomberg reports suggested Sprint/SoftBank are weighing their options in the wake of recent DOJ/FCC comments.
After rallying yesterday on a report Sprint (S -6.1%) is close to lining up $45B in financing for a T-Mobile USA (TMUS -5.4%) bid, Sprint and T-Mobile are selling off following a Bloomberg report stating FCC/DOJ regulators have "resisted the concept" of a merger between the carriers in preliminary talks with SoftBank's (SFTBF) Masayoshi Son, and that Son and Sprint's Dan Hesse now "plan to decide in the next few weeks whether to move ahead on a bid."
Bloomberg adds Deutsche Telekom (DTEGY) has asked Son to "gauge regulatory sentiment" towards a merger, and that Son and DT's perception of regulatory feedback will "determine their next steps."
In addition, SoftBank and DT are reportedly at odds over the breakup fee for any deal - SoftBank wants a small one on account of regulatory risks, DT feels differently.
FCC and DOJ officials have already suggested they're skeptical about backing a merger between the #3 and #4 U.S. mobile carriers. While Sprint might argue the carriers need to merge to effectively compete against Verizon/AT&T, T-Mobile's recent share gains bring that claim into question.
Sources tell dealReporter Sprint (S +6.5%) is close to obtaining $45B in financing for a T-Mobile USA (TMUS +3.9%) bid. Both Sprint and T-Mobile shares have spiked higher in response.
The WSJpreviously reported Sprint has received proposals from at least two banks for a bid that would value T-Mobile's equity at $31B. In addition to the financing needed to acquire Deutsche Telekom's (DTEGY) 67% T-Mobile equity stake, Sprint and parent SoftBank (SFTBF) will need funds to cover (and potentially refinance) T-Mobile's $20B debt load.
The report comes as DOJ/FCC officials continue taking a skeptical view of a deal that stands to reduce the number of nationwide U.S. carriers to three.
A family with just two smartphones still has to pay $130/month, but each additional smartphone costs only $15/month. One important catch: Like AT&T's recent shared data plan discount and a $200 credit provided in its T-Mobile promotion, the family plans require users forgo traditional smartphone subsidies. AT&T's efforts to pare subsidy expenses are a major reason its wireless op. margin rose 690 bps Y/Y in Q4.
AT&T is underperforming on a bad day for equities, as are Verizon (VZ -3.4%) and Sprint (S -4.3%). While AT&T, Sprint, and (especially) T-Mobile have launched major discounts and promotions in recent months, Verizon has maintained its premium pricing strategy, betting its coverage and service quality will allow it to continue delivering industry-leading subscriber adds and margins. But fears are growing Big Red increasingly has no choice but to return fire.
AT&T's latest move comes days after the carrier announced a $100 credit for each new line opened by a new or existing subscriber.
During a Bloomberg TV interview, outspoken T-Mobile USA (TMUS -0.1%) CEO John Legere provided fresh hints his firm is open to merging with Sprint (S +6.5%).
Legere: "We all need better scale and capability ... The question starts to be: How do you take the maverick and supercharge it? We either need more spectrum and capability and a lot more investment, or we need consolidation."
Sprint and parent SoftBank (SFTBF, SFTBY) have been widely reported to be lining up financing to acquire Deutsche Telekom's (DTEGF, DTEGY) 67% T-Mobile USA stake. But regulators might object to a tie-up, particularly given T-Mobile's efforts to shake up the U.S. mobile industry via aggressive/novel pricing schemes.
Separately, Sprint announces it has expanded its 4G LTE network to cover 40 more markets, including Milwaukee and Salt Lake City. Sprint, which is trying to neutralize Verizon and AT&T's LTE coverage leads, now offers LTE in 340 markets.
The WSJ reports Sprint (S) has "received proposals from at least two banks" for financing a T-Mobile USA (TMUS) bid, and envisions valuing T-Mobile's equity at $31B (compares favorably to a current market cap of $26B).
Financing, of course, is only one of several challenges Sprint would face in merging with T-Mobile. The company and parent SoftBank (SFTBF) would have to negotiate a deal for Deutsche Telekom's (DTEGY, DTEGF) 67% T-Mobile stake. They would also have to win the blessing of FCC/DOJ regulators who seem to prefer having four nationwide carriers around, and appear to be pleased with T-Mobile's aggressive pricing.
There's also the matter of Dish (DISH -2.2%), which reportedly won't stand idly if Sprint bids for T-Mobile, and could have much less trouble winning the blessing of regulators.
In addition to acquiring Deutsche's T-Mobile stake, Sprint may need to backstop a possible refinancing of ~$20B worth of T-Mobile deal.
AT&T (T -1.9%), Verizon (VZ -2%), and Sprint (S -4.4%) are each selling off after T-Mobile USA (TMUS -1.1%) announced a credit program for defecting mobile subscribers - up to $300 in credit for trading in a phone, buying an approved T-Mobile phone, and signing up for a postpaid plan, and up to $350 to pay off termination fees - that was even more aggressive than expected. Sprint is also being pressured by a Deutsche downgrade to Hold.
FBR's David Nixon likely speaks for many on the Street when he expresses concerns AT&T, Verizon, and Sprint "will be forced to react to the move." Fears that T-Mobile's efforts will pressure industry margins and increase churn have already been running high. AT&T announced a smaller promotion (up to $450 in credit) last week.
Nixon also says CES feedback points to "surprising confidence from T-Mobile US that a merger with Sprint could be approved if argued on the right basis." T-Mobile CEO John Legere didn't rule out a future acquisition by Sprint yesterday, though he did suggest T-Mobile's brand would be maintained post-acquisition. Legere also took quite a few shots at his rivals.
Meanwhile SoftBank (SFTBF, SFTBY) CEO Masayoshi Son isn't mincing words regarding Sprint's challenges. In a Nikkei column, Son blasts Sprint's marketing efforts (all of the company's ad agencies have been fired), and says the carrier "has gotten used to being a loser."
Sprint (S -3%) has been cut to Market Perform by Cowen, and to Neutral by Macquarie, following a major run-up fueled in part by T-Mobile M&A hopes.
T-Mobile (TMUS -1.5%), meanwhile, has been pulled from Goldman's Conviction Buy list. Its shares have taken off in response to reports Sprint and Dish are mulling bids.
Xilinx (XLNX +1.1%) has been upgraded to Buy by Goldman, and rival Altera (ALTR -1.8%) has cut to Neutral.
UniPixel (UNXL -4.4%) has been cut to Market Perform by Cowen following the departure of its CEO and COO.
Intersil (ISIL -4.9%) has been cut to Underweight by Evercore.
NXP (NXPI -4.3%) and ON Semi (ONNN -4.7%) have been cut to Neutral by Goldman, and fellow chipmaker Analog Devices (ADI -2.5%) has been cut to Sell. ADI has also been cut to Market Perform by Wells Fargo.
Wells Fargo has raised its Sprint (S +3.1%) valuation range to $11-$11.75 from $7.75-$8.25, and predicts ongoing reports of a Sprint/SoftBank bid for T-Mobile USA (TMUS +0.7%) will continue to bolster shares.
The firm also thinks the value of Sprint's spectrum (increased by the Clearwire acquisition) helps create a base for shares, and notes a T-Mobile deal would produce major cost savings.
Meanwhile, Reuters observes the Obama Administration has taken a skeptical view towards consolidation between major carriers and pay-TV providers, something that could stand in the way of a Sprint/T-Mobile deal.
New FCC chairman Tom Wheeler recently stated his organization has a responsibility to "protect competition that exists and promote competition in those areas where it doesn't." Likewise, DOJ antitrust attorney William Baer has said the Department "believes it is essential to maintain vigilance against any lessening of the intensity of competitive market forces."
Cantor's Youssef Squali believes Facebook's (FB +4.5%) ad load (the proportion of news feed content consisting of ads) has doubled in Q4 to 10%. Though Facebook typically sees its ad load rise in Q4 Squali thinks there's an improvement in ad quality this time around, with more sales to major brands and "a greater mix of higher-priced click-to-play video ads."
The remarks come only two months after Facebook made investors nervous by stating it won't significantly increase its news feed ad load going forward, and will focus on improving quality.
In addition to Squali's note, shares could also be getting a lift from the fact Facebook's 70M-share, $3.85B stock offering was priced at only a modest discount to where shares traded before the offering was first announced.
Meanwhile, Facebook has struck a deal with T-Mobile USA (TMUS +0.9%) to offer free access to Facebook and Facebook Messenger to users of the #4 U.S. carrier's GoSmart prepaid services, whether or not they have data plans.
Facebook has already reached similar deals with many international carriers, in an effort to grow its user base and mobile engagement in markets where many Internet users are mobile-only.
The WSJ reports at least six banks are working on financing proposals for a Sprint (S +3%) bid for T-Mobile USA (TMUS +0.7%). Sprint, whose shares jumped a week ago when the paper first reported the carrier is thinking of making an offer for its smaller rival, is now up 16% since the initial report arrived.
Financing or not, close regulatory scrutiny of a proposed merger between the third and fourth-largest U.S. mobile carriers is a given. JPMorgan noted yesterday a Dish (DISH +1.6%) bid for T-Mobile (TMUS +0.7%), also reportedly being weighed, would have much less trouble being cleared by regulators.
A day after Reuters reported Dish (DISH +0.3%) is considering a 2014 bid for T-Mobile USA (TMUS +3.3%), JPMorgan predicts an offer for the #4 U.S. carrier would involve a $35/share price tag (a 25% premium to current levels), and that a merger would create $1B/year in synergies.
The firm also points out a Dish/T-Mobile merger would have much less trouble being approved by regulators than a Sprint/T-Mobile merger.
T-Mobile is now up 10% since the WSJ reported last Friday that Sprint is thinking about making an offer for the company.
Less than a week after rallying in response to a WSJ report that Sprint (S +2.3%) is considering a bid, T-Mobile USA (TMUS +2.2%) has moved higher on a Reuters report stating Dish (DISH +0.5%) is weighing a bid for the #4 U.S. carrier, and won't stand idly if Sprint makes an offer.
Charlie Ergen, thwarted this year in his efforts to buy Sprint/Clearwire and still looking to make use of Dish's 4G spectrum, has repeatedly stated he's open to a merger with T-Mobile.