Sprint Nears Decision on Pursuing Deal -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 2, 2017).

Sprint Corp. said it would decide soon on whether to pursue a merger with either T-Mobile US Inc. or Charter Communications Inc., with an announcement coming "in the near future," according to the wireless carrier's chief executive.

"We've had sufficient conversations with several parties and soon we're going to start making decisions," Sprint CEO Marcelo Claure said on a call Tuesday after the company reported results for the three months ending June 30.

While Mr. Claure didn't mention either company directly, The Wall Street Journal has reported on its discussions with both of them. Sprint and its parent company, Japan's SoftBank Group Corp., are considering making a formal offer to acquire Charter, the U.S.'s second-largest cable firm, according to people familiar with the matter, a massive deal that would reshape the rapidly transforming cable, wireless and media industries.

The offer being considered by Sprint's chairman and SoftBank founder, Masayoshi Son, would be to form a new publicly traded entity that would use SoftBank money to buyout shareholders of both Sprint and Charter at a premium, the people said. The transaction would be funded with roughly half cash and half stock. The deal would result in SoftBank controlling the combined company.

SoftBank has already lined up financing from at least three banks to fund the deal, the people said. One of them cautioned that it could still take several weeks or more to reach an agreement with either company.

SoftBank already controls more than 80% of Sprint, whose market cap is around $35 billion, not including roughly the same amount of net debt, following a roughly 7% jump in the stock since The Wall Street Journal first reported contours of the plan on Friday. Charter's market cap is about $100 billion and it has more than $60 billion of debt.

Mr. Claure said a deal with T-Mobile might be the preferred option, but it would be tougher to get past antitrust regulators in Washington. Sprint and T-Mobile held merger talks in 2014 but backed down in the face of regulator opposition.

"If you were to merge with another wireless carrier, the synergies are enormous. I mean, this is a scale business, and today you need to operate two competing networks to offer the same service, having half the amount of customers that AT&T and Verizon have," Mr. Claure said.

T-Mobile and Charter declined to comment. Last month, T-Mobile CEO John Legere said he hasn't ruled out a combination with his wireless rival, though he's also told investors not to expect any imminent deal.

A Charter deal poses its own hurdles, particularly since the company said Sunday that it isn't interested in buying Sprint. Mr. Claure said Tuesday that Sprint didn't offer to sell itself, so he was "surprised to see Charter's announcement."

Charter's CEO, Tom Rutledge, may have an incentive to wait things out: His pay package includes options that vest if the stock reaches $564. It currently trades around $390.

But SoftBank's Mr. Son is counting on the influence of Charter's largest investor, Liberty Broadband Corp., which is run by cable mogul John Malone. Mr. Malone has been trying to build support for a wireless deal for about a year.

It isn't clear whether Mr. Son will proceed with his plan to make a formal offer to Charter's board, and, if he does, whether he can persuade the company to go along. If it does reach a deal, the combination of Charter's dense underground cable network and Sprint's trove of wireless airwaves could create a robust network that could carry large amounts of data traffic from smartphones and other types of connected devices in the future.

Were Sprint to go it alone, the results it reported Tuesday show it has a tough road ahead. The carrier drew praise from analysts for posting its first quarterly profit in three years -- $206 million compared with a loss of $302 million a year ago -- but revenue fell 4.5% to $8.2 billion and it added fewer customers than rivals. While Sprint started investing more money in network improvements, its quarterly profit came primarily from cost-cutting.

The company said it had 88,000 postpaid phone additions during the quarter, the eighth consecutive period of expansion. However, the pace of growth has slowed from a year ago when the company reported 173,000 postpaid additions. Overall, it still suffered a net loss of 39,000 postpaid subscribers (a figure that includes things like tablets and smartwatches.)

Mr. Claure said Sprint will be fine without a deal, but "doing a strategic transaction will always be significantly better than having a stand-alone entity."

Craig Moffett, a telecom analyst at MoffettNathanson, worries investors may sour on Sprint if a deal doesn't materialize amid all the talk.

"The obvious risk in so openly courting one potential suitor after another is that Sprint will increasingly be viewed as damaged goods," he wrote in a research note to analysts. "Like an unsold house that has sat too long on the market, as asset that has been shopped too often without success takes on an air of taint."

Ezequiel Minaya contributed to this article

Write to Ryan Knutson at ryan.knutson@wsj.com

(END) Dow Jones Newswires

August 02, 2017 02:47 ET (06:47 GMT)