Flaky Iliad bid muddies T-Mobile US sale odyssey

August 1, 2014

By Robert Cyran

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Iliad has delivered what could be a Trojan horse for Sprint’s plans to buy T-Mobile US. In a rival approach, the $16 billion French telcom has offered $33 a share, or $15 billion, for 57 percent of the No. 4 U.S. mobile operator. It’s a flaky offer on several levels. But the intervention may intensify antitrust objections to Sprint’s wish to merge.

The efforts of Deutsche Telekom to offload T-Mobile US can already be called an odyssey. AT&T, then the clear No. 1 American carrier, tried to buy it for $39 billion but antitrust regulators rebuffed the attempt in 2011. Then the siren song of huge synergies – perhaps $30 billion in present value, according to Bernstein research – tempted Sprint owner SoftBank to roll the antitrust dice. Sprint would pay $32 billion, or $40 a share, for T-Mobile US in a deal that has been agreed in principle, if not formally. Regulators seem firmly against it, though, if public statements about keeping four national competitors are taken at face value.

That’s one reason Iliad’s bid could gain momentum, even though it looks shaky. The French group would be buying a company much larger than itself, adding lashings of debt given it only expects to raise $2 billion of new equity for the deal. That’s bold, considering T-Mobile US burnt through $2.5 billion in the first half of the year thanks to hefty capital expenditures.

Promises of hefty synergies from Iliad’s purchase of T-Mobile US are also puzzling. Why a French industry owner should offer noticeably greater purchasing advantages, for example, than a huge German one is unclear, and Iliad doesn’t have significant U.S. operations. And even assuming Iliad’s touted “$10 billion of synergies” is shorthand for the present value of, say, $1 billion of annual cost savings or revenue gains, it’s hard to see where they would come from.

From the point of view of Deutsche Telekom, which owns two-thirds of T-Mobile US, Sprint’s $40 a share for the entire company looks better on paper than a $33 bid for just over half, even if – with synergies – it’s worth some $36.20 a share overall, as Iliad claims. But Iliad’s offer could heighten the regulatory drama. As the epic unfolds, it may become harder to imagine Sprint walking away victorious.

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