-- > Sprint's shares fell 16% to $6.11 in after hours trading. T-Mobile's were down 8.6%.
Sprint Abandons Pursuit of T-Mobile, Replaces CEO
Carrier Quits Chase Amid Regulators' Opposition; Entrepreneur Marcelo Claure to Replace Dan Hesse
Dan Hesse, longtime CEO of Sprint, is expected to be replaced, according to people familiar with the situation. Reuters
After months of arguing that it couldn't compete effectively without a merger partner, Sprint Corp. S -1.22% is preparing to go it alone.
The company decided Tuesday to end its pursuit of T-Mobile TMUS +0.65% US Inc. in the face of stiff opposition from regulators and replace Chief Executive Dan Hesse with Marcelo Claure, a billionaire entrepreneur who is untested as a wireless operator.
The decisions, made at a Sprint board meeting Tuesday, put an end to a deal that would have valued T-Mobile at $32 billion and created a more muscular rival to market leaders Verizon Communications Inc. VZ -1.10% and AT&T Inc. T -0.99% Instead, Sprint will have to try to bulk up the hard way—by launching a fierce fight to rebuild its subscriber rolls after shedding customers for years.
An extensive network overhaul has hurt service quality and made it difficult for the country's third largest wireless carrier to recruit customers aggressively. But much of that work is now done, and Sprint said last week it is testing new price plans in preparation for a strong push later this year.
Whether it can succeed is an open question. The company has lost money every year back to 2007, the fallout of a disastrous merger with Nextel that left it saddled with disparate network technologies and poor customer service. The company was taken over more than a year ago by SoftBank Corp. 9984.TO -3.50% , but the Japanese company's chief executive, Masayoshi Son, has struggled to change Sprint's culture. Mr. Hesse declined to comment.
Meanwhile, it will face an invigorated competitor in T-Mobile. Sprint's erstwhile merger partner has added more than 4 million of the industry's lucrative postpaid customers over the past five quarters and may attract new suitors. Iliad SA, which disrupted the French market with ultra cheap wireless plans, has offered to pay $15 billion for control of the company, and satellite television operator Dish Network Corp.'s DISH -0.45% chairman, Charlie Ergen has said he would be interested in T-Mobile if Sprint's deal fell through.
The decision to abandon the deal at least will spare Sprint what was shaping up to be a long, distracting and potentially fruitless antitrust battle. The carriers had been working on a deal for months. But regulators had been working hard as well to head off further consolidation of the already highly concentrated U.S. wireless industry.
Their concern: A deal to combine the country's third- and fourth-largest wireless carriers would have left consumers with fewer choices for service, particularly at the low end of the market.
When Messrs. Son and Hesse met officials at the Justice Department and Federal Communications Commission over the winter, they were given the signal that a deal would face high hurdles. Last week, the FCC punctuated its opposition by saying it would propose rules that would prevent Sprint and T-Mobile from bidding together in a crucial coming spectrum auction.
Mr. Son, who had been driving the effort, worked hard to press his case. He appeared on Charlie Rose and at conferences promising an alternative to what he considers America's backward wireless networks and saying he needed scale to mount a real fight with Verizon and AT&T.
He also amassed a deep bench of advisers in Washington, including lobbyist David Carmen, former senator Bob Kerrey, and Tony Podesta, a lobbyist whose brother John is a senior counselor to President Obama.
Yet Mr. Son came to the decision over the past few weeks that moving forward with the bid was too risky, people familiar said. A deal would need to clear not only an antitrust review at the Justice Department, but also a public interest vetting by the FCC. Three years ago, it was opposition from the FCC that put the nail in the coffin of AT&T's $39 billion deal to buy T-Mobile.
Jonathan Chaplin, an analyst at New Street Research, said Sprint's decision was "a step in the right direction," and the companies could revisit a tie-up when the regulatory environment was less hostile. Dropping the bid now would allow Sprint to finish turning itself around and avoid nearly two years of uncertainty.
The decision to bow to government pressure is the latest development in what has been a wild year for media and telecom, including Comcast Corp.'s planned $45 billion acquisition of Time Warner Cable and AT&T's $49 billion deal for DirecTV. It comes on a day when 21st Century Fox abandoned its effort to buy Time Warner Inc. for about $80 billion and will surely disappoint the scores of bankers and lawyers representing the multiple parties with stakes in the deal.
Sprint plans to make an announcement early Wednesday, one of the people familiar with the matter said.
Mr. Son, who closely oversees Sprint, is turning to Mr. Claure to reinvigorate a carrier that he has said grew too complacent with third place.
The Bolivian soccer fan built mobile phone distributor Brightstar Corp. into a company with more than $10 billion in revenue and a presence in more than 50 countries. SoftBank bought control of Brightstar in January to give it more clout with makers of mobile phones and put Mr. Claure on Sprint's board. He will have his work cut out for him.
Since buying control of Sprint, Mr. Son has found it more difficult than he anticipated to change the stodgy culture of a telecom company based in Overland Park, Kansas, that he said had a "loser" mentality. Mr. Son opened an office in San Carlos, Calif. and brought SoftBank engineers from Japan to help guide the turnaround.
His brash personality rubbed some Sprint executives the wrong way, however, and there has been a series of departures in the sales, marketing and network departments.
"Masa and I are very different and we don't always agree," wrote Mr. Hesse in an email to the Journal earlier this year, using Mr. Son's nickname. "But we respect each other a great deal and we communicate that respect to one another regularly."
Meanwhile, T-Mobile continues to consider alternatives for its future. T-Mobile on Tuesday denied Iliad's request for access to its books after determining that the proposed $15 billion bid wasn't strong enough, people familiar with the matter said.