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Will T-Mobile and Sprint Try to Merge If a Vodafone-AT&T Deal Comes?

Jon C. Ogg

In the world of big telecom mergers, it is getting ever harder to imagine any big deals in the United States. Verizon Communications Inc. (VZ) was able to buy out the stake from Vodafone Group PLC (VOD) because the Department of Justice viewed that as already a part of Verizon. The Justice Department viewed the proposed T-Mobile US Inc. (TMUS) buyout by AT&T Inc. (NYSE:T) as a different matter altogether, ultimately blocking the merger.

Now that reports have circulated this past week that AT&T Inc. (NYSE:T) has its eyes internationally, perhaps on something as large as all of Vodafone Group PLC (VOD), we cannot help but consider some other merger possibilities that we want readers to at least remember and to think about.

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Mergers have often come in waves throughout history. One large merger begets another. T-Mobile US Inc. (TMUS) is worth $20 billion in market cap, but it always has been a distant wireless carrier when compared to AT&T and Verizon.

Sprint Corp. (NYSE: S) is now effectively a tracking stock of Softbank in Japan, when it comes to the U.S. mobile operations. T-Mobile US Inc. (TMUS) trades at close to 30 times 2014 earnings estimates. Sprint is worth about $27 billion and T-Mobile about $20 billion. We also want to consider what the landscape looks like for network and prepaid integrations here as well.

The long and short of the matter is that we hate suppositions. It seems almost safe to assume that, with Vodafone being a dominant cellular player in so many jurisdictions, some government somewhere will say that it would block AT&T from owning Vodafone operations there. The most recent NSA spy scandals might only exaggerate that risk, rather than minimize it.

We recently covered the potential U.S. telecom merger candidate landscape. These were all addressed in that, but we want investors to at least consider that these merger two-steps could re-emerge if AT&T decides to make a move to gobble up Vodafone.

Is there a reason we are not providing much beyond valuations at this point? You bet, because the primary rationale of an AT&T-Vodafone merger borders on being too difficult to imagine.

Stay tuned, but give those some consideration, even if you are justifiably not willing to consider throwing money toward any of these possibilities yet. Please do not even consider this as a merger rumor either. Last week's Vodafone and AT&T story felt much more like a rumor floated by AT&T to see what the market thought, so any supposition stories are simply reminders of past M&A rumors.

Also, do not forget about Dish Network Corp. (DISH) and its $22 billion market cap. This company wants some wireless relationship as well, but that may be a partnership with a Sprint or a T-Mobile rather than any merger.

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