T-Mobile and Dish Have More Options Than Each Other: Real M&A
2015-06-12 17:55:15.280 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Brooke Sutherland and Alex Sherman
(Bloomberg) -- For T-Mobile US Inc., a deal with satellite-
TV provider Dish Network Corp. isn’t the only option -- and it
may not be the best one either.
The fourth-largest U.S. wireless carrier has climbed 15
percent since Sprint Corp. decided in August to drop its bid for
T-Mobile because of regulatory pressure. Earnings at the $32
billion company have gotten better, too, as it gained more
subscribers. Because of that, T-Mobile’s German parent Deutsche
Telekom AG can command top dollar for what is probably the last
major U.S. mobile-phone service provider still obtainable.
“T-Mobile has outperformed their expectations, that’s for
sure,” said Sergey Dluzhevskiy, a Rye, New York-based analyst
at Gabelli & Co. “They are going to be looking for the best
possible deal. Charlie Ergen is a tough negotiator, and
obviously Deutsche Telekom is not a forced seller.”
Dish Chief Executive Office Charlie Ergen said in a
Bloomberg TV interview that T-Mobile remains a logical merger
partner for his $33 billion company, but Deutsche Telekom may be
in a position where it doesn’t want to do a deal.
“Would Dish and T-Mo be a logical combination? I think it
would be. I think that there are certainly a lot of positives to
that, if there’s willing participants,” Ergen said. “They’re
obviously controlled by a German company who has strategic
initiatives, both in Europe and the United States, and they may
not be in a position where they want to do anything.”
Pricey Target
T-Mobile would be on the pricier side for a billionaire
dealmaker who isn’t known for paying up. Ergen amassed his
stockpile of spectrum, or wireless airwaves, mainly through
bankruptcy auctions. While he did shell out most of Dish’s cash
for the latest government sale of bandwidth, he used a loophole
to get about $3 billion in discounts.
T-Mobile shares have more than doubled to $39 since
combining with MetroPCS Communications Inc. in 2013. Dish has
risen 85 percent over that same stretch, but is down 0.8 percent
so far this year, at about $72.
In a sale, T-Mobile could probably command about $49 a
share, Dluzhevskiy of Gabelli said. That’s about a 25 percent
premium to a stock price that has already inflated with takeover
speculation.
Another sticking point is that Dish would likely pay for a
large portion of any T-Mobile takeover in stock. Deutsche
Telekom is concerned that Dish shares are overvalued and the
premium investors now assign to its unused spectrum will go away
once those airwaves are put to use, according to people familiar
with the matter, who asked not to be identified because the
information is private.
No Urgency
T-Mobile will eventually need more spectrum to continue
growing and a deal with Dish would let it avoid spending
billions at government auctions. That’s not a pressing need
right now, though, because T-Mobile’s customer base is still
relatively small and it has ample capacity where it has
coverage, Walter Piecyk, a New York-based analyst at BTIG, wrote
in a June 4 report.
At $49 a share, a takeover of T-Mobile would be a $62
billion deal, including debt. It’s big, but several billion less
than what Comcast Corp. was willing to pay for Time Warner Cable
Inc. And there are companies in the industry, Comcast included,
that might consider the price tag worth it.
Many Options
Buying T-Mobile would help Comcast offer TV, Internet,
mobile and wireline service in one package -- a “quadruple
play” that peers in Europe have already been moving toward,
Dluzhevskiy said.
“Obviously Dish is there, so it’s an option, but it’s not
the only option,” Gabelli’s Dluzhevskiy said. “This is an
asset that potentially can create value for a number of
different parties in the industry.”
A representative for Deutsche Telekom declined to comment.
Altice SA, which was in the running for Time Warner Cable,
is more of a long-shot buyer. Still, the cable operator has said
it wants the U.S. to ultimately account for half of its business
and there aren’t many other big targets available to get it
there.
Even Charter Communications Inc. could take a look after it
digests the planned $79 billion purchase of Time Warner Cable
announced in May.
Wireless suitors for T-Mobile are also a possibility.
Foreign carriers such as Mexican billionaire Carlos Slim’s
America Movil SAB could consider a bid to expand their U.S.
presence. Sprint and its majority owner SoftBank Corp. could
also make another run at T-Mobile if the 2016 presidential
election brings in an administration more amenable to its case.
Keep It
There’s nothing stopping Deutsche Telekom from just holding
onto T-Mobile either.
“Deutsche Telekom seems to be struggling with having
ownership of any asset in North America,” said Craig Moffett,
co-founder and analyst at MoffettNathanson LLC. “You have to
wonder why they’d want to shed the best-performing asset they’ve
got. The results at T-Mobile keep getting better.”
Dish also has “other options that may be more attractive
to our board and our shareholders,” Ergen said.
Dish doesn’t need T-Mobile today because it’s generating
free cash flow and still has time before government deadlines to
use its spectrum kick in, BTIG’s Piecyk wrote in his June 4
report.
If Ergen can’t strike a deal with T-Mobile, he could
instead explore a breakup of Dish that would put the spectrum in
a separate business with a sale-leaseback structure. Then
there’s always the potential for a sale to Verizon
Communications Inc.
Dish has made attempts at other wireless deals in the past
that haven’t come through in the end. The company’s bids for
Sprint and Clearwire Corp. both failed. “Sometimes the best
deal is the deal you don’t do,” Ergen said.
“My shareholders aren’t calling up and saying, ‘We’re mad
at you because you didn’t do this deal,’” he said. “Or, ‘We’re
mad at you because you started this deal and didn’t do it.’”
For Related News and Information:
Dish’s Ergen Sees Fit With T-Mobile as He Develops Sling TV
Ergen Is Still Odd Man Out in Billionaires’ Deal Club: Real M&A
Altice’s Emergence Alters Cable Consolidation Equation: Real M&A
Bloomberg Intelligence, telecom carriers: BI TELCN <GO>
Top deal news: DTOP <GO>
Real M&A columns: NI REALMNA <GO>
--With assistance from Betty Liu and Scott Moritz in New York.
To contact the reporters on this story:
Brooke Sutherland in New York at +1-212-617-0448 or
bsutherland7@bloomberg.net;
Alex Sherman in New York at +1-212-617-8278 or
asherman6@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman
2015-06-12 17:55:15.280 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Brooke Sutherland and Alex Sherman
(Bloomberg) -- For T-Mobile US Inc., a deal with satellite-
TV provider Dish Network Corp. isn’t the only option -- and it
may not be the best one either.
The fourth-largest U.S. wireless carrier has climbed 15
percent since Sprint Corp. decided in August to drop its bid for
T-Mobile because of regulatory pressure. Earnings at the $32
billion company have gotten better, too, as it gained more
subscribers. Because of that, T-Mobile’s German parent Deutsche
Telekom AG can command top dollar for what is probably the last
major U.S. mobile-phone service provider still obtainable.
“T-Mobile has outperformed their expectations, that’s for
sure,” said Sergey Dluzhevskiy, a Rye, New York-based analyst
at Gabelli & Co. “They are going to be looking for the best
possible deal. Charlie Ergen is a tough negotiator, and
obviously Deutsche Telekom is not a forced seller.”
Dish Chief Executive Office Charlie Ergen said in a
Bloomberg TV interview that T-Mobile remains a logical merger
partner for his $33 billion company, but Deutsche Telekom may be
in a position where it doesn’t want to do a deal.
“Would Dish and T-Mo be a logical combination? I think it
would be. I think that there are certainly a lot of positives to
that, if there’s willing participants,” Ergen said. “They’re
obviously controlled by a German company who has strategic
initiatives, both in Europe and the United States, and they may
not be in a position where they want to do anything.”
Pricey Target
T-Mobile would be on the pricier side for a billionaire
dealmaker who isn’t known for paying up. Ergen amassed his
stockpile of spectrum, or wireless airwaves, mainly through
bankruptcy auctions. While he did shell out most of Dish’s cash
for the latest government sale of bandwidth, he used a loophole
to get about $3 billion in discounts.
T-Mobile shares have more than doubled to $39 since
combining with MetroPCS Communications Inc. in 2013. Dish has
risen 85 percent over that same stretch, but is down 0.8 percent
so far this year, at about $72.
In a sale, T-Mobile could probably command about $49 a
share, Dluzhevskiy of Gabelli said. That’s about a 25 percent
premium to a stock price that has already inflated with takeover
speculation.
Another sticking point is that Dish would likely pay for a
large portion of any T-Mobile takeover in stock. Deutsche
Telekom is concerned that Dish shares are overvalued and the
premium investors now assign to its unused spectrum will go away
once those airwaves are put to use, according to people familiar
with the matter, who asked not to be identified because the
information is private.
No Urgency
T-Mobile will eventually need more spectrum to continue
growing and a deal with Dish would let it avoid spending
billions at government auctions. That’s not a pressing need
right now, though, because T-Mobile’s customer base is still
relatively small and it has ample capacity where it has
coverage, Walter Piecyk, a New York-based analyst at BTIG, wrote
in a June 4 report.
At $49 a share, a takeover of T-Mobile would be a $62
billion deal, including debt. It’s big, but several billion less
than what Comcast Corp. was willing to pay for Time Warner Cable
Inc. And there are companies in the industry, Comcast included,
that might consider the price tag worth it.
Many Options
Buying T-Mobile would help Comcast offer TV, Internet,
mobile and wireline service in one package -- a “quadruple
play” that peers in Europe have already been moving toward,
Dluzhevskiy said.
“Obviously Dish is there, so it’s an option, but it’s not
the only option,” Gabelli’s Dluzhevskiy said. “This is an
asset that potentially can create value for a number of
different parties in the industry.”
A representative for Deutsche Telekom declined to comment.
Altice SA, which was in the running for Time Warner Cable,
is more of a long-shot buyer. Still, the cable operator has said
it wants the U.S. to ultimately account for half of its business
and there aren’t many other big targets available to get it
there.
Even Charter Communications Inc. could take a look after it
digests the planned $79 billion purchase of Time Warner Cable
announced in May.
Wireless suitors for T-Mobile are also a possibility.
Foreign carriers such as Mexican billionaire Carlos Slim’s
America Movil SAB could consider a bid to expand their U.S.
presence. Sprint and its majority owner SoftBank Corp. could
also make another run at T-Mobile if the 2016 presidential
election brings in an administration more amenable to its case.
Keep It
There’s nothing stopping Deutsche Telekom from just holding
onto T-Mobile either.
“Deutsche Telekom seems to be struggling with having
ownership of any asset in North America,” said Craig Moffett,
co-founder and analyst at MoffettNathanson LLC. “You have to
wonder why they’d want to shed the best-performing asset they’ve
got. The results at T-Mobile keep getting better.”
Dish also has “other options that may be more attractive
to our board and our shareholders,” Ergen said.
Dish doesn’t need T-Mobile today because it’s generating
free cash flow and still has time before government deadlines to
use its spectrum kick in, BTIG’s Piecyk wrote in his June 4
report.
If Ergen can’t strike a deal with T-Mobile, he could
instead explore a breakup of Dish that would put the spectrum in
a separate business with a sale-leaseback structure. Then
there’s always the potential for a sale to Verizon
Communications Inc.
Dish has made attempts at other wireless deals in the past
that haven’t come through in the end. The company’s bids for
Sprint and Clearwire Corp. both failed. “Sometimes the best
deal is the deal you don’t do,” Ergen said.
“My shareholders aren’t calling up and saying, ‘We’re mad
at you because you didn’t do this deal,’” he said. “Or, ‘We’re
mad at you because you started this deal and didn’t do it.’”
For Related News and Information:
Dish’s Ergen Sees Fit With T-Mobile as He Develops Sling TV
Ergen Is Still Odd Man Out in Billionaires’ Deal Club: Real M&A
Altice’s Emergence Alters Cable Consolidation Equation: Real M&A
Bloomberg Intelligence, telecom carriers: BI TELCN <GO>
Top deal news: DTOP <GO>
Real M&A columns: NI REALMNA <GO>
--With assistance from Betty Liu and Scott Moritz in New York.
To contact the reporters on this story:
Brooke Sutherland in New York at +1-212-617-0448 or
bsutherland7@bloomberg.net;
Alex Sherman in New York at +1-212-617-8278 or
asherman6@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman