Sprint, T-Mobile near deal

A businessman uses his mobile phone as he walks past the logo of Japan's telecommunications giant SoftBank in Tokyo on December 25, 2013. SoftBank plans to acquire T-Mobile US through its subsidiary Sprint in a move that would create the world's second largest mobile carrier by revenue after China Mobile, a report said on December 25. (Toru Yamanaka / AFP/Getty Images / December 25, 2013)

Sprint Corp. (S) is nearing an agreement on the price, capital structure and termination fee of an acquisition forT-Mobile US Inc. (TMUS) that could value the wireless carrier at almost $40 a share, people with knowledge of the matter said.

Sprint will offer about 50 percent stock and 50 percent cash for T-Mobile, leaving Bonn-based parent Deutsche Telekom AG with about a 15 percent stake in the combined company, according to the people, who asked not to be identified because the process is private. The agreement could be announced as soon as July, the people said.

A deal would bring together the third- and fourth-largest U.S. wireless carriers to create a more formidable competitor to leaders AT&T Inc. and Verizon Communications Inc. Billionaire Masayoshi Son, the founder of Japan-basedSoftBank Corp. (9984), which owns 80 percent of Sprint, has been pitching the deal to skeptical regulators as beneficial to consumers in both wireless and Internet service.

Deutsche Telekom, which owns about 67 percent of T-Mobile, was seeking at least $40 a share, two of the people said. SoftBank is willing to pay in the upper $30s, and the two sides have bridged the gap, the people said. The companies haven’t set an announcement date, and there’s still a lot of work to be done before a deal is completed, including deciding management of the new entity, the people said.

Bill White, a spokesman for Sprint, declined to comment, as did Andreas Fuchs, a spokesman for Deutsche Telekom. Anne Marshall, a spokeswoman for T-Mobile, didn’t respond to a message seeking comment.

Bulking Up

Son is seeking to bulk up Sprint as consolidation increases across the communications industry. Verizon closed a deal earlier this year to buy out Vodafone Group Plc’s stake in their wireless venture for $130 billion. Comcast Corp. and Time Warner Cable Inc. have announced a merger, and AT&T plans to acquire satellite-TV operator DirecTV for $48.5 billion.

At about $40 a share, T-Mobile’s equity value would be about $31 billion. The company has about $14.5 billion of debt and $5.5 billion of cash, giving T-Mobile a theoretical enterprise value of about $40 billion.

T-Mobile rose as much as 6.5 percent to $36.50 in late trading yesterday, while Sprint gained as much as 4.8 percent.

Convincing Regulators

Additional work that remains to be done includes developing a model that forecasts Sprint and T-Mobile’s futures independently and together, two of the people said. The projections are key to convincing regulators that allowing a merger is in consumers’ best interests. AT&T’s deal for DirecTV has given Son more confidence that he can make a strong case, two of the people said.

The sides are nearing an agreement on a reverse termination fee, two of the people said. Son wants to pay about $1 billion, while Deutsche Telekom has pushed for closer to $3 billion, people familiar with the matter said earlier this month.

Bloomberg News previously reported a deal would probably be announced in June or July. It’s possible a deal announcement could slip into August, one of the people said. If no deal is reached by then, the sides are likely to stop negotiations for several years and wait for a new U.S. presidential administration, the person said.

To contact the reporter on this story: Alex Sherman in New York atasherman6@bloomberg.net

To contact the editors responsible for this story: Mohammed Hadi at mhadi1@bloomberg.netElizabeth Wollman, Sarah Rabil