Ergen, one of corporate America’s toughest negotiators, may force T-Mobile to find another buyer for its Boost Mobile prepaid service, sources close to the deal say. As FOX Business first reported on Tuesday, Ergen was looking to renegotiate the terms of its wholesale agreement to purchase Boost with T-Mobile, including Boost’s $1.4 billion price tag.
T-Mobile’s divestiture of Boost to Dish was one of the U.S. Department of Justice’s mandates in order for the Antitrust Division to greenlight the merger of Sprint Corp with T-Mobile. It was also a key component of the wholesale agreement, which allows Dish to use T-Mobile’s network for seven years as it builds out its own 5G network.
Now FOX Business has learned Ergen is balking at the sale price as the value of many assets decline amid the coronavirus pandemic-spawned recession. And T-Mobile is growing frustrated and looking at other potential buyers, people with knowledge of the matter say. One person close to T-Mobile tells FOX Business that Dish is “extremely hard to work with and not living up to their end of the bargain” or its agreement to buy Boost that was announced last year.
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According to another person with knowledge of the matter, a major private equity firm is interested in being a partner in a buyout group for Boost.
The $26.5 billion T-Mobile acquisition of Sprint gained DOJ approval in July 2019. Dish was a linchpin of DOJ’s decision, with the company agreeing to purchase spectrum from the carriers to start a new, fourth wireless telephone company and through its purchase of Boost. Both aspects of the deal addressed antitrust concerns the merger would create as it faced a lawsuit by state attorneys general.
That lawsuit failed to convince a federal judge to block the deal, and a key witness in the case was Ergen, who took the stand in December 2019 and made the argument he would buy both Boost and spectrum to emerge as a strong wireless competitor in a market dominated by AT&T, Verizon and now the combined T-Mobile Sprint.
He was also adamant he would provide quality service to prepaid customers through his purchase of Boost Mobile. Prepaid services are wireless deals targeted to serve low-income customers.
But in recent weeks, Ergen has not been able to come to terms to complete the Boost sale. The purchase was supposed to close by June 1 but according to a memo sent earlier this week by T-Mobile to its employees the acquisition has stalled — raising questions about whether Ergen has any intention of completing it. As FOX Business reported Tuesday, DOJ’s Antitrust Division is trying to mediate the negotiations before its July 1 so-called drop-dead date.
In the meantime, sources tell FOX Business that T-Mobile is looking at other potential buyers, including a possible consortium of private equity.
Neither Dish nor T-Mobile would deny the negotiations are at an impasse. T-Mobile wouldn’t deny it will consider other buyers. A DOJ spokeswoman didn’t return calls and emails for comment.
Another potential hiccup in the deal is Ergen’s financing to complete the Boost purchase. SoftBank Group had signed on to provide $1 billion to Dish to purchase Boost. A spokesperson for SoftBank told FOX Business the company still intends to provide financing, but people close to the company note that SoftBank has run into significant financial problems causing the investment firm to back out of deals and lay off employees, including possibly the Boost financing. The Dish spokesperson declined to comment on SoftBank’s commitment to the financing.
Yet another snafu: Some telecom executives suspect the agreement between Dish and T-Mobile was not a hard and fast commitment, meaning Ergen may not be compelled to buy Boost.
Ergen himself in his testimony during the AGs’ case suggested the only way the deal might not occur is if there was a natural disaster akin to 9/11: “Where the markets are today — if we don’t have another 9/11, God forbid — the banks are confident.” Some now suspect Ergen could use the COVID-19 pandemic as a 9/11-like disaster — giving him an excuse to not move forward.
Of course, Ergen could be simply playing hardball as he is known to do through his long career in telecom. He knows that backing away from a Boost purchase could damage his relationship with regulators who thought they had a deal. If Ergen doesn’t go through with creating a wireless network, regulators can force Ergen to hand back to them billions of dollars in spectrum.
In the meantime, the fate of Boost’s roughly 8 million customers hangs in the balance. Founder of Boost Peter Adderton tells FOX Business, “We need to get a deal done or these people will have nowhere to go.”