T-Mobile restarts talks to acquire Sprint: source

(Reuters) – T-Mobile US Inc (TMUS.O) is engaged in a new round of talks to acquire Sprint Corp (S.N), a person familiar with the matter said on Tuesday, the latest effort to combine the third and fourth largest U.S. wireless carriers.

The combined company would have more than 127 million customers and could be in a stronger footing to compete against the No. 1 and No. 2 wireless players, Verizon Communications Inc (VZ.N) and AT&T Inc (T.N), amid a race to expand offerings in so-called 5G wireless technology.

It was not immediately clear what prompted the companies to try to clinch a deal for the third time in the last four years. Their previous round of negotiations ended in November over valuation disagreements. Since then, Sprint’s shares lost more than a fifth of their value, amid investor concerns over how the company can compete effectively under the weight of its long-term debt of more than $32 billion.

The source asked not to be identified because the matter is confidential. Sprint declined to comment, while T-Mobile did not immediately respond to requests for comment.

Shares of Sprint were up 20.43 percent at $6.19, giving the company a market capitalization of $25 billion, while T-Mobile shares were up 6 percent at $63.38 on Tuesday afternoon, giving it a market capitalization of $54 billion, after the Wall Street Journal first reported on the new talks.

Sprint is controlled by Japan’s SoftBank Group Corp (9984.T), while T-Mobile is majority-owned by Germany’s Deutsche Telekom AG (DTEGn.DE). The issue of control at the combined company has been a thorny topic in previous negotiations over a possible deal.

Failure to clinch an agreement last November left SoftBank Chief Executive Officer Masayoshi Son, a dealmaker who raised close to $100 billion for his Vision Fund to invest in technology companies, in search of other options for Sprint.

Even though Sprint’s customer base has expanded under CEO Marcelo Claure, growth has been driven by heavy discounting. Analysts have said that, without T-Mobile, Sprint lacks the scale needed to invest in its network and to compete in a saturated market.

“It is impossible for Sprint to sustain on its own, and the same problems still exists with SoftBank and Sprint not comfortable with a minority stake. But ultimately you have to believe that these two companies will end up together even if the path to get there is torturous,” MoffettNathanson LLC analyst Craig Moffett said.

Another roadblock to the deal could be regulatory hurdles. Sprint’s and T-Mobile’s first round of merger talks ended in 2014 after the Obama administration expressed antitrust concerns about the deal.

It is not clear how the Trump administration would view the combination. AT&T agreed to acquire U.S. media company Time Warner Inc (TWX.N) in October 2016 for $85 billion. The U.S. Department of Justice has sued to block the deal over concerns about the companies’ pricing power in the media market. AT&T and Time Warner are currently defending their deal in court.