- Sprint' S Sector In The Stock Market 2017
- Sprint Sector In The Stock Market
- Women S Sector In The Philippines
On Sunday morning, Sprint (NYSE:S) and T-Mobile US (NASDAQ:TMUS) finally announced an agreement to merge after years of negotiations and speculation. Regardless of the news flow, Sprint shareholders aren't any closer to gains due to valuation and regulatory concerns similar to my investment thesis a few weeks back.
Source: John Legere on Twitter
Weak Deal Pricing
The wireless companies announced the deal valuation for Sprint at an enterprise value of $59 billion. The problem for shareholders is that the stock traded far above this range for most of 2017.
The all-stock transaction has an exchange ratio of 0.10256 of a T-Mobile share for each Sprint share. Based on T-Mobile ending last week at $64.52, the deal values Sprint at $6.62 per share. Depending on how TMUS trades when the market opens on Monday, S is likely to trade down from the $6.50 close.
The reason for the weak pricing is that Sprint is clearly in a desperate situation. The wireless company might have the spectrum for 5G, but it doesn't have the balance sheet to compete in the sector against AT&T (NYSE:T) and Verizon Communications (NYSE:VZ).
Sprint had $32 billion in debt at the end of 2017 and lacks the capacity to borrow for additional capital spending to build out a robust 5G network. One will note that Sprint issues more press releases on wireless spectrum-backed debt than updating the market on the 5G network progress with that spectrum.
Massive Regulatory Risk
The biggest issue with the deal is the lack of regulatory uncertainty and the general assumption that this deal won't get approved. Not only did AT&T and T-Mobile get blocked back in 2011 when the sector was more dominated by the industry giants, but the DOJ is now trying to block AT&T from merging with Time Warner (NYSE:TWX) in a vertical deal.
My previous research discussed the risks to consolidation to three national carriers due to the Canadian example. iMore calls the Canadian mobile market fast and expensive with limited distinction in the major network offerings for the iPhone. The lack of competition has left ARPU levels amongst the highest in the world, making the hurdle very high for Sprint and T-Mobile to prove a merger won't harm consumers.
AT&T just reported a quarter where the company lost 22,000 postpaid phone net subscribers, and analysts at Morgan Stanley (via FierceWireless) expect Sprint and T-Mobile to outperform. Possibly this deal is a harbinger that Sprint will miss these targets, but the recent results don't suggest the struggles warrants needing a merger. If anything, the results support the thesis of the FCC that 'effective competition' now exists in the domestic wireless market.
Beyond these issues, shareholders face a risk that isn't really that the deal gets blocked, but that the stock goes nowhere for 18 months. For various reasons, the AT&T/Time Warner deal and Qualcomm (NASDAQ:QCOM)/NXP Semiconductors (NASDAQ:NXPI) deals haven't offered much upside for shareholders holding through the regulatory process, with both mergers being consummated in October 2016.
In both of those cases, the shareholders had the opportunity to dump either Time Warner or NXP Semiconductors during the regulatory process as the stocks rose into expected approvals, while one would've done better with the S&P 500 index. The upside to those shareholders was the completion of deals letting them mostly cash out of their shares at premium valuations. The upside for Sprint is years after the completion of the deal. The upside occurs after the deal is completed, once the $6 billion in estimated run rate cost synergies are realized over multiple years along with the elimination of the domestic price wars.
Source: Sprint/T-Mobile merger presentation
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Sprint isn't likely to rise above the offer price until regulatory risk is gone, and that isn't going to happen with T-Mobile dominating the domestic wireless service growth and subscription additions. Basically, the stock has no upside on a deal and throughout a messy regulatory approval process.
Takeaway
Inazuma eleven strikers iso. The key investor takeaway is that the long-term value of a Sprint/T-Mobile deal is in the cost synergies of a combined 5G network and reduced competitive scenario in the domestic wireless sector once a merger is approved by regulators. The value doesn't exist for Sprint shareholders from a merger agreement, but rather not until completing a positive regulatory ordeal.
Sprint' S Sector In The Stock Market 2017
Similar to the reasons last year, Sprint appears desperate for a merger, and shareholders will never win in that situation. The wireless company will be in bad shape after spending billions to complete a failed merger, so the downside risk is significant.
Sprint Sector In The Stock Market
Disclosure:I am/we are long TWX.I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.
T-Mobile (TMUS+0.8%) earned an upgrade to Buy from MoffettNathanson, which says the breakup of merger talks with Sprint (S+0.2%) will ultimately benefit the upstart No. 3 carrier.
Women S Sector In The Philippines
The collapse of the deal 'will ultimately prove to be good news for the sector,' writes Craig Moffett, though with one clear loser: “Robbed of the prospect of a merger — at least for now — Sprint will now have to focus on sustainability. That means less, not more, promotionality.'
And that means fewer net subscriber additions, which will be absorbed by Sprint's rivals, he adds.
Moffett has raised his price target on TMUS to $73 from $69, while trimming his price target on Sprint to $2 from $6. (Sprint's currently at $6.16.)
He's reiterated a Buy on Verizon (VZ+1.6%; $51 price target) and a Neutral on AT&T (T-0.2%), based on wireline troubles, debt and declining revenues at DirecTV.
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