Must-know: Will Iliad be the Trojan horse for buying T-Mobile?

Market Realist

Overview: Can T-Mobile and Iliad find the right wavelength? (Part 1 of 7)

Iliad and T-Mobile

The saga for acquiring a controlling stake in telecom major T-Mobile (TMUS) is now taking epic proportions. Shades of the ten-year siege of Troy, the subject of Homer’s Iliad, the saga for acquiring a controlling stake in the forth largest U.S. telecom provider is entering its fourth year. A number of global telecom giants had expressed interest in the purchase including the second largest U.S. operator AT&T (T) in 2011. Japanese SoftBank (SFTBF) expressed interest in 2013, and most recently, French telecom operator, Iliad (ILD.PA).

Last week on July 31, Iliad submitted a formal bid for T-Mobile. Paris-based Iliad is a privately-held company, majority-owned by French billionaire, Mr. Xavier Niel. Iliad’s operations span 35 countries mainly in Europe and Africa.

Iliad bid $33 per share or $15 billion for a 56.6% stake in T-Mobile. The company said this represented a 42% premium over “T-Mobile U.S. unaffected share price of $25.4, on December 12, 2013, prior to market rumors regarding a potential combination between Sprint and T-Mobile U.S.”

Did Iliad’s bid cause the Sprint deal to unravel?

T-Mobile was already reportedly in talks with Japanese tycoon Masayoshi Son’s Sprint (S) when the rival bid was made. Market estimates had put the Sprint bid at $40 per share. According to the latest news reports cited on Bloomberg, Reuters, and a number of other media sites, Sprint has bowed out of the bidding following the Iliad offer, probably due to regulatory opposition to the deal. A potential Iliad acquisition is unlikely to be viewed as anti-competitive by regulators. You’ll find a detailed background for the impact of regulation in the telecom sector in Part 4 and 5 of this series.

Why the future looks promising for T-Mobile

While Iliad’s $15 billion bid is likely to be rejected by T-Mobile as being too low, you get a sense that the T-Mobile acquisition story isn’t over just yet. For one, market interest remains strong with Iliad likely to make a second offer. The Chairman of Dish Network Corp., Mr. Charlie Ergen, has also indicated interest in T-Mobile in the wake of Sprint’s withdrawal.

Secondly, T-Mobile is hot right now in terms of both operational and financial performance. The company recently overtook Sprint in terms of market cap to become the third most valuable telecom company in the U.S. on the heels of its 2Q14 performance. The company would and should look to leverage its recent performance to get the best deal for its shareholders.


Continue to Part 2

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