T-Mobile U.S. and Sprint plan to announce a merger agreement without any immediate asset sales, as they seek to preserve as much of their spectrum holdings and cost synergies as they can before regulators ask for concessions, according to people familiar with the matter.
While it is common for companies not to unveil divestitures during merger announcements, T-Mobile's and Sprint's approach shows that the companies plan to enter what could be challenging negotiations with U.S. antitrust and telecommunications regulators without having made prior concessions.
Reuters reported last week that some of the U.S. Justice Department's antitrust staff were skeptical about the deal, which would combine the third and fourth largest U.S. wireless carriers. However, regulators can only begin reviewing a corporate merger once it has been agreed to and announced.
T-Mobile and Sprint are preparing a negotiating strategy to tackle demands from regulators regarding asset sales, including the divestment of some of their spectrum licenses after their deal is announced, the sources said.
The companies' announcement of a merger agreement, currently expected to come either in late October or early November, will focus on the potential benefits of the deal for U.S. consumers, including the advancement of next-generation 5G wireless technology, which requires considerable investment, the sources added.
The sources asked not to be identified because the deliberations are confidential. T-Mobile and Sprint declined to comment.
"It is better for Sprint and T-Mobile to listen and learn the concerns of regulators first, and see whether there is anything that can be done to address those concerns," MoffettNathanson research analyst Craig Moffett said.
Companies often chose not to make any pre-emptive announcements on divestitures when they announce mergers. For example, when U.S. health insurers Anthem and Aetna separately announced deals two years ago to acquire peers Cigna and Humana, they did not reveal which assets they would be willing to divest. U.S. federal judges shot down both mergers on antitrust grounds earlier this year.
Some media and telecommunications deals in recent years have been announced with divestitures, such as U.S. cable operator Comcast's proposed takeover of Time Warner Cable in 2014, which was later called off after regulatory pushback. When U.S. TV station owner Sinclair Broadcast Group announced its acquisition of peer Tribune Media in May, it said it might sell certain stations to comply with regulators.
Companies often also choose to place caps in their merger agreements on the size of divestitures they would be willing to accept in their negotiations with regulators. T-Mobile and Sprint have not yet agreed to include such a cap in their merger agreement, though it is possible they will do so, one of the sources said.
UBS research analyst John Hodulik said in a research note earlier this month that the U.S. Federal Communications Commission will likely force T-Mobile and Sprint to make some divestitures of spectrum, since the combined company would have the most airwaves in its sector with more than 300 MHz, putting it ahead of Verizon's and AT&T's holdings.
T-Mobile spent $8 billion in a government auction of airwaves earlier this year. Sprint stayed out of the auction, touting its holdings of high-band spectrum, which it says can move large volumes of information at high speeds.
Having access to a lot of spectrum is particularly important for the 5G wireless offerings that AT&T and Verizon hope to launch to better compete with high-speed Internet services from cable companies.
T-Mobile and Sprint believe that the U.S. antitrust enforcement environment has become more favorable since the companies abandoned their previous effort to combine in 2014 amid regulatory concerns, according to the sources.
The two companies have not yet introduced a breakup fee in their merger negotiations that would compensate one side if regulators reject the deal, though it is possible one will be agreed to by the time the deal is signed, the sources said.
Investors have been waiting for the deal to be announced since Reuters first reported last month that T-Mobile and Sprint were close to agreeing to tentative merger terms.
Sprint shareholders are expected to receive little to no premium in the deal, meaning that Japan's SoftBank, which controls Sprint, and other Sprint shareholders will own around or more than 40 percent of the combined company. T-Mobile majority owner Deutsche Telekom and the rest of the T-Mobile shareholders will own the remainder.
It is still possible that the negotiations between T-Mobile and Sprint will conclude without a deal, the sources have cautioned.