Sprint and T-Mobile Merger

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Synergy is the “concept that the value and performance of two companies’ combined will be greater than the sum of the separate individual parts,” (“Synergy,” n.d.). Shareholders will benefit from the merger because of the synergistic effect of the deal. In the article, “Synergy,” from Investopedia, synergy can be achieved by increased revenues, combined talent and technology, or cost reduction. Sprint merging with T-Mobile would have a synergistic effect. Firstly, this is a horizontal merger, which is a merger between two firms that operate in the same market (Gaughan, 2015). With that being said, the expected revenues post merge would increase. This is due to the loyal customers from Sprint and T-Mobile would now be loyal customers of one company. Sprint, as said earlier, merged with Clearwire and SoftBank, which is a big reason of why the expenses for Sprint have increased in the recent years. However, the acquisitions of these two companies has been a positive sign for Sprint. Clearwire was a leading provider of 4G wireless broadband services, and SoftBank is a Japanese based multinational telecommunications and Internet Corporation. With these two mergers, Sprint is taking steps to be the leading wireless and wireline provider. This expansion by Sprint would stand out to T-Mobile, who would want to get their hands on a piece of this. By merging these two companies, T-Mobile could benefit as well as Sprint. As said earlier, T-Mobile has had increase revenues the past three years, as well as increasing total assets. T-Mobile has increased their Property, Plant, and Equipment from $16,245MM in 2014 to $20,000MM in 2015. This shows that they are slowly expanding their assets. So, a merger with Sprint would be perfect in order to really grow and shows that the companies are both doing well and continue to be more profitable, which in the long run will increase the stock price, which will increase shareholder value. The idea of merging two companies is to create synergy, and by merging Sprint and T-Mobile, synergy would be achieved, and the final outcome of the merger would result in a greater “sum than the sum of the outcomes that would have been achieved if the companies had not merged,” (“Synergy,” n.d.).

One of Sprint and T-Mobile’s biggest competitor is Verizon in the telecommunications industry. Verizon has much more revenue than Sprint and T-Mobile. A contributing factor of this is that Verizon is not strictly a cell phone company. Verizon also has television services within its company. In 2015, Verizon had total revenue of $131,620MM. Although a merger with Sprint and T-Mobile will not bring the revenue close to this amount, it is a start. With Sprint merging with SoftBank, and SoftBank’s success with the 4G network, T-Mobile will have better 4G coverage. This alone will be a success since there will be more customers that would be likely to go to T-Mobile. T-Mobile also does not have service plans with tiered data, instead all plans have unlimited data (Epstein, 2016). This stands out to customers because other cell phone companies have tiered data plans which could be extremely costly, especially when looking into family plans. Although prices vary between companies, the amount of data allowed per month is a big factor for consumers these days since the 4G LTE network uses more data now. With T-Mobile now having better 4G capabilities after the merge, these plans will stand out drastically to customers. Also, with these two companies merging to one, the company can expand their business. They already will be combining the customers they already have, now it is time to find a way to be more competitive to Verizon. Something that they would want to try to start and build is a television broadcasting department. This would not be a project that would be immediate after the merge, but it is something that the two companies will be combining their resources in order to master this. After successfully finishing this project, they would be right next to Verizon in competition.

This merger is between two companies that would benefit greatly. Although I don’t see any anti-takeover measures from T-Mobile, this doesn’t mean that the merger will be quick and easy. Sprint, as the bidder, has to come up with a price that T-Mobile will agree with, and with terms that would be agreed upon. This would not be a hostile takeover, so both companies would be able to come to an agreed upon price. T-Mobile’s stock has been increasing steadily over the past few years. Back in December of 2014, the price was 25.31 per share. As of December 7, 2016, the price was 58.39 per share. So after evaluating the growth possibilities after the merger, Sprint would big higher than the 58.39 per share given the increase and potential T-Mobile has. The board of directors, who are responsible for acting in the best interest of the shareholders, will see the positive potential growth of a merger. Also, as mentioned before, with the ability to use additional resources to open a new department for television, this will bring more jobs. Both companies would be confident that there will not be layoffs or much corporate restructuring.

With mergers and acquisitions, many times there are agency problems that could have an effect on the deal. An agency relationship is defined as the relationship between stockholders and management (Ross, Jordan, & Westerfield, 2013). With this being said, it is managements responsibility to act in the best interest of the shareholders. The goal of shareholders is to maximize their wealth and have a positive return on their investment. When it comes to the merger between Sprint and T-Mobile, I don’t see an agency problem occurring. As previously stated, this will benefit both companies, and ultimately increase the stock price. This is resulting in maximizing shareholder wealth. Although I don’t foresee agency problems existing here, there is always a possibility it will occur. One way it can be present in this merger is if Sprint offers T-Mobile’s top executives a drastic increase in compensation. This would be considered bribing and the management team might decide on going forward with the merger because it will benefit themselves greatly. A way to minimize this is both management teams and directors come up with a incentive package after completing the merger. The terms of the incentives could be based on opening the new department successfully or even no increase in compensation. Although no increase in compensation would be fully favorable to management teams, this would have the executives be able to make a decision based on the potential success of the growth of the companies, and not by being greedy and neglecting the shareholders interest by moving forward solely based on the increase in compensation.

When merging two companies,