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Sprint Closes Asset Sale, Inches Closer to T-Mobile Merger

Zacks Equity Research

Sprint Corporation S recently closed the asset-sale transaction of its 17-building Overland Park headquarters campus. The assets were sold to Wichita-based Occidental Management for an undisclosed amount. The strategic move comes close on the heels of a likely decision by the U.S. Department of Justice in favor of its merger with T-Mobile US, Inc. TMUS.

As part of the sale-leaseback agreement, the U.S. communications service provider will relocate from 11 buildings, it presently occupies, to four surrounding buildings on the campus. While the company’s employees are likely to be moved to the southern end of the property centered on the 6200 Sprint Parkway building, renovations for the main building are currently underway. Sprint will utilize the sale proceeds to reinvest in these four buildings for its employees.

Reportedly, T-Mobile has hinted that it will make the campus a second headquarters for the potential combined company if their impending $26.5-billion merger is completed successfully.

In April 2018, T-Mobile and Sprint inked an agreement to merge in an all-stock transaction. The companies expected the transaction to close in the first half of 2019 and have currently extended their merger deadline. The deal will help accelerate development of faster 5G wireless networks. The New T-Mobile would have about 127 million customers. It will have a strong closing balance sheet and a fully-funded business plan with a solid foundation of secured investment grade debt at close. The combined entity will be a force to reckon with in the U.S. wireless, video and broadband industries, boasting a network capacity for a nationwide 5G network deployment. Both companies have already received respective shareholder approvals related to this game-changing transaction.

However, the Federal Communications Commission had initially offered stiff resistance toward the deal on grounds that the merger of the third and fourth largest carriers in the domestic market would stifle competition and lead to monopolistic trade practices. In order to win over the anti-trust rules and secure regulatory approvals, the companies decided to divest Sprint’s prepaid wireless brand Boost. This is unlikely to harm the combined entity much as T-Mobile has a successful prepaid brand — Metro (formerly Metro PCS). Metro reportedly has 21.1 million prepaid customers, while its biggest competitor AT&T Inc. T has 17.2 million.

The commitment has ensured a clearance from the Federal Communications Commission and now awaits consent from the U.S. Department of Justice. As the long-pending merger is stuck in a mandatory go-ahead decision, the purported divestment has attracted fair bit of interest from diverse fields.

Amazon.com Inc. AMZN has reportedly entered the buyout fray as it aims to gain access to the new T-Mobile's wireless network for at least six years. Per industry sources, the company is also keen to buy any wireless spectrum that could be divested to get regulatory clearance. Notably, Amazon has already been offering phone calls through its Echo Connect product, which uses a person's home phone service and enables an Alexa-enabled voice-activated speaker to make phone calls. The probable acquisition of Boost prepaid wireless service would give Amazon a solid footprint in the market to further tap additional revenues by offering its services to a dedicated customer base.

Sprint presently has a Zacks Rank #5 (Strong Sell).

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