French telecoms company Iliad SA has made a surprise offer for T-Mobile US Inc., setting up a potential bidding war with rival suitor Sprint Corp., the U.S. mobile carrier now controlled by Japan’s Softbank.
Iliad, which has shaken up the French mobile and broadband market in the past decade with its cheap, pared-down subscriber plans, bid $15-billion (U.S.) in cash for 56.6 per cent of T-Mobile US at $33 per share, it said in a statement on Thursday.
The French company said it valued the rest of T-Mobile, the fourth-largest U.S. carrier and 66.67 per cent-owned by Deutsche Telekom AG, at $40.50 per share.
It expects $10-billion of cost savings from the deal, though it is unclear where it would make those savings as Iliad has no U.S. operations at present.
The bid values T-Mobile at $36.20 per share, a premium of 42 per cent over the pre-announcement share price. SoftBank and Deutsche Telekom had already agreed to broad terms for a deal, under which Sprint would pay about $40 per share, valuing T-Mobile at nearly $32-billion.
A person close to Iliad said its founder Xavier Niel believes the French company has a strong card to play because its bid would not face the antitrust scrutiny that confronts Sprint in trying to merge the third and fourth-biggest U.S. mobile operators.
“SoftBank has been told in many very clear coded words that the Department of Justice and the FCC would probably not approve the acquisition,” said Reed Hundt, a former chairman of the U.S. Federal Communications Commission. “There’s no question to me that the FCC would say ‘bienvenue’” to the proposed Iliad deal.
The FCC and Department of Justice earlier this year expressed a desire to have at least two more network operators competing against the market leaders, AT&T Inc and Verizon Communications Inc.
The T-Mobile bid is the latest chapter in Niel’s audacious empire building, which has already claimed prized businesses in Israel, Monaco and France.
In many ways Niel is similar to Masayoshi Son, the head of Softbank and now his rival suitor for T-Mobile US. Both have operated their companies as challengers who cut prices and take on larger rivals with bigger resources.
Niel sees the U.S. market as ripe for the kind of challenge that Iliad mounted in France where its entry to the mobile market in 2012 sent prices down by 30 per cent and hurt profits at bigger rivals Orange and SFR as well as Bouygues Telecom. He ranks 133rd on Forbes list of billionaires, with a net worth of $9.5-billion.
Son, who also serves as Sprint’s chairman, has pledged to start a price war in the United States, and he has said industry consolidation would allow Sprint to more effectively compete against Verizon and AT&T. He owns 19.3 per cent of Softbank and is 46th on the Forbes list, with a net worth of $18.4-billion.
T-Mobile would appear to be well-suited for the challenger role championed by Niel as well as Son.
Last year T-Mobile turned around years of subscriber losses through campaigns that have eliminated contracts, restructured plans and sparked price slashing across the industry.
Earlier on Thursday, T-Mobile swung into net profit after a year of losses and reported the industry’s largest postpaid phone subscriber additions in the quarter.
T-Mobile Chief Executive Officer John Legere, known for his outspoken and sometimes abrasive style, has come to define T-Mobile’s brash new persona, epitomized by his full frontal attacks on competitors, offering to pay early termination fees for customers who defect to its rivals, for example.
“We know this is a scale industry. Scale brings advantage,” T-Mobile Chief Financial Officer Braxton Carter told Reuters earlier on Thursday. “What we’ve seen so far is a glimpse of what real competition in this industry looks like. If we could turbo-charge it, it could be an incredible opportunity to bring more competition to the market,” he added.
BIG BITE FOR ILIAD
Iliad said it would finance its offer, which was earlier reported by the Wall Street Journal, through a mix of equity and debt and already had the backing of unnamed international banks.
Nevertheless the deal would be a big bite for Iliad: its market capitalisation of just above $16-billion, compares with about $25-billion for T-Mobile US.
T-Mobile’s owner Deustsche Telekom will now have the benefit of two interested bidders for its US operation.
A person at Deutsche Telekom familiar with the talks also said a deal with Iliad had a certain appeal due to the reduced risk of it being blocked by U.S. regulators.
Three years ago regulators rejected AT&T’s agreed $39-billion bid for T-Mobile US, which resulted in AT&T paying Deutsche Telekom as T-Mobile’s full owner a reverse break-up fee of $6-billion in cash and U.S. mobile assets.
A Deutsche Telekom spokesman declined to comment.
T-Mobile shares were up 6.5 per cent at $32.95 in late trading on the New York Stock Exchange. Sprint shares were down 5.5 per cent at $7.33.
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