T-Mobile U.S. Gains on Iliad SA’s 56.6% Stake Buy Offer

Recently, French carrier Iliad SA took the telecom industry by surprise by bidding for 56.6% stake in T-Mobile U.S. Inc. (TMUS). The French telecom giant has proposed to acquire the stake for $15 billion in cash or $33 per share, partly through debt and equity. Following this news, the stock price of T-Mobile has gained 6.46% to $32.94 per share in yesterday’s trade.

Meanwhile, T-Mobile has advanced to the final stage of negotiation with SoftBank-owned Sprint Corp. (S). Japanese telecom giant SoftBank plans to buy over a 50% stake in T-Mobile for $16 billion.

However, the deal is expected to face close scrutiny by both the Federal Communication Commission (FCC) and the U.S. Department of Justice (DOJ) on anti-competitive issues. It is deemed that the merger between the nation’s third and fourth largest carriers will create a monopolistic body in the U.S. telecom sector.

In 2011, the FCC had rejected AT&T Inc.’s (T) bid to acquire T-Mobile U.S., citing that it wants the four national telecom operators to retain healthy competition. If Sprint had executed the transaction, the figure would have gone down to three.

Hence, the uncertainty surrounding the ongoing deal has allowed the French carrier to place a tentative offer for T-Mobile. Although, Iliad’s bid was lower than Sprint’s, we believe that the price may scale up if T-Mobile shows interest.

The U.S. telecom market is largely dominated by two players, namely, Verzion Communications Inc. (VZ) and AT&T. Notably, the operators offer triple-play services and were the earliest telecom operators to deploy 4GLTE network across their footprints.

However, a weak cash position and lack of sufficient spectrum have considerably affected T-Mobile’s competitive position in the U.S. market. Of late, the company has implemented several innovative strategies which have resulted in significant subscriber growth.

Despite such positives, T-Mobile will continue to face spectrum crunch as the demand for higher network speeds will result in increased subscriber churn. Thus, the only feasible option for T-Mobile is to merge with a large carrier with a strong cash position and sufficient spectrum strength.

T-Mobile currently carries has a Zacks Rank #3 (Hold).