No Satellite of Love for T-Mobile
For T-Mobile US, it may still take two to tango.
After Sprint's decision last week to shelve a plan to bid for its rival, T-Mobile shareholders who had counted on an offer are scanning for other potential suitors. T-Mobile rejected a request to see its books from French telecom operator Iliad, calling the latter's $15 billion offer for a 56.6% stake too low.
One possible contender: Dish Network. But a deeper look at the satellite company's balance sheet suggests a deal might be hard to swing.
Owning T-Mobile could help Dish put its wireless spectrum holdings to use if the combined company can invest in building a network based on Dish's airwaves. Dish would avoid the regulatory hurdles that quelled Sprint's ambitions.
But Dish and T-Mobile are both issuers of high-yield debt. They would risk their credit ratings if a deal has a big cash component and the combined company has leverage of more than five times trailing earnings before interest, taxes, depreciation and amortization, according to Moody's. And Deutsche Telekom, which owns 67% of T-Mobile, would likely want cash.
Moody's lays out three scenarios, including Dish paying all cash for a 51% stake in T-Mobile, buying Deutsche Telekom's stake for 70% cash and 30% stock, or buying all of T-Mobile for 50% cash and 50% stock. All utilize most of the companies' cash and Moody's also assumes an enterprise value for T-Mobile of $53 billion, or $37 a share plus gross debt, no cost savings and $6 billion to participate in the government's auction for broadcast spectrum. The upshot: the combined company's leverage would reach between 5.6 and 5.8 times Ebitda.
Dish Chairman Charlie Ergen is likely attuned to this dilemma. On a conference call last week, he spoke admiringly of T-Mobile but spent more time extolling the potential of Sprint. T-Mobile investors looking for a deal partner should probably take the hint.