T-Mobile is not the only party interested in getting into a merger with super-regional carrier MetroPCS. Another major player, Sprint, is eyeing to make a bid for the smaller telco.
Sprint is holding talks with advisers and is evaluating the viability of putting up a bid for MetroPCS, reports Bloomberg. According to sources, the Sprint board will be meeting this week, and a potential bid for MetroPCS will be part of the agenda.
Observers say that one thing that might hinder a bid from sprint is the potentially hefty “breakup fee.” For instance, if MetroPCS were to back out from an acquisition deal, it would have to pay the aggrieved party (such as T-Mobile) $150 million. Meanwhile, Deutsche Telekom will have to pay a $250 million “reverse breakup fee” if it were to back out from its bid.
The MetroPCS deal is a potentially beneficial one for anyone that would successfully acquire the company. The carrier is currently valued at $32.8 billion, while an acquisition based on an equity valuation of $12.24 per share would be $3 billion. If T-Mobile were to successfully acquire MetroPCS, it will have a combined subscriber base of 42.5 million, sales of $42.8 billion annually.
This is still smaller than Sprint’s business, although it might prove to be a challenge, since Sprint will effectively be competing with a bigger company.
We may recall earlier that Sprint also had discussions with Deutsche Telekom to acquire T-Mobile prior to the German company’s negotiations with AT&T for a $39 billion acquisition deal, which was shot down by regulators, citing anti-competition laws.
Other observers say that a Sprint-MetroPCS merger would likely make more sense, given better compatibility between networks, compared with T-Mobile.
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I think MetroPCS has a lot more to gain from a merger with T-Mobile than it does with Sprint. If you compare the coverage maps of the two CDMA carriers, it’s obvious that Metro has vastly better coverage which completely engulfs Sprint’s, and comparing my time on Metro with my mother’s time on Sprint, Metro seems to be the more reliable carrier as well, and with better customer service. A merger between Metro and T-Mobile would make them the first US company to use both GSM and CDMA technologies. And if T-Mobile could bring Metro better phones, that would be one of the few things Metro needs to compete with the larger com
I’d like to point out that T-Mobile would actually be shifting Metro PCS customers to it’s GSM network by the end of 2015 so that they would be compatible. It would still be its own network for a long time just with T-Mobile owning them. Metro PCS’s coverage is mainly through roaming agreements with other large companies including Sprint and Verizon. Therefore, the density of coverage in areas where they both operate would be better although not larger. The compatibility of the two networks means that Sprint would basically have to do nothing. Along with the current network vision strategy that Sprint is in the process of doing, acquiring Metro would be bet and cost less than if T-Mobile did it.