SoftBank Eyes Merger With T-Mobile as 'Plan B'

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Karly Domb Sadof

SoftBank is in talks with Deutsche Telekom over a possible deal for T-Mobile US, as the Japanese company looks for alternatives to enter the U.S. wireless market if its deal with Sprint Nextel falls apart, three sources familiar with the matter said on Friday.

SoftBank and Deutsche Telekom were in talks last year about a deal for T-Mobile USA and have had periodic discussions since then, but those conversations have intensified in recent weeks after Dish Network made a $25.5 billion counterbid for Sprint, two of the sources said. SoftBank has a deal to buy 70 percent of Sprint for $20.1 billion.

Deutsche Telekom owns 74 percent of T-Mobile US, and one possibility is for SoftBank to buy that stake instead, the sources said. T-Mobile US has a market value of about $15 billion.

SoftBank still wants to do the Sprint deal after spending months on it, and is looking at a possible T-Mobile transaction only as "Plan B", the sources said who declined to be named because the talks are private.

T-Mobile's shares rose more than 3 percent after the news of SoftBank's interest, while Sprint shares fell 1.2 percent.

The talks come ahead of a June 12 vote for Sprint shareholders to approve the Japanese company's bid for the No. 3 U.S. wireless carrier and could add pressure on investors as they decide how to vote. Earlier this week, proxy adviser Glass Lewis said Sprint shareholders should not vote on SoftBank's bid while the board reviewed Dish's offer.

"It seems to me that this is more SoftBank posturing to perhaps pressure Sprint's special committee to not delay the vote next week to continue its negotiations with Ergen," said BTIG analyst Walter Piecyk, referring to Dish Chairman Charlie Ergen.

(Read More: Telecom Consolidation Is Just a Matter of Time: T-Mobile CEO)

Roy Behren, a merger arbitrage money manager at Westchester Capital Management, which claims ownership of more than 19 million Sprint shares, added, "I still don't think SoftBank gets the vote unless they bump the offer."

Still, the news of SoftBank's interest in T-Mobile US adds a new wrinkle to an already complicated calculus before Sprint shareholders.

The SoftBank deal is much farther along in the process than Dish's rival offer, which is still preliminary. SoftBank has cleared a key review by the agency that oversees foreign investments in the United States and is also getting closer to finishing the Federal Communications Commission review. ISS, a major proxy advisory firm, has also backed the SoftBank deal.

Moreover, if SoftBank decides to walk away from the Sprint deal, it would stand to make somewhere around $5 billion from currency hedging gains, its previous purchase of Sprint shares and breakup fees, the sources said.

SoftBank, Sprint and T-Mobile declined to comment. Deutsche Telekom did not immediately respond to a request for comment.

Trading Barbs

Dish has jumped not only the Sprint-SoftBank deal, but also a related acquisition of Clearwire by Sprint. Clearwire has wireless airwaves that both companies want. Sprint already owns a majority stake in Clearwire.

Clearwire shareholders are due to vote on June 13 on Sprint's offer to buy out minority shareholders in a deal that values the company at $5 billion. But a special committee for Clearwire is also reviewing Dish's offer, which values the company at $6.5 billion.

(Read More: Dish Trying to 'Agitate' Sprint, Not Buy: Grubman)

In recent months, the tussle has become increasingly bitter, with SoftBank founder Masayoshi Son trading barbs with Ergen.

SoftBank has started taking steps, including thinking about the deal structure and financing, to prepare itself for a T-Mobile US transaction if the Sprint deal gets any more costly or delayed, the sources said.

For SoftBank, one attraction of doing a deal with Deutsche Telekom is it can have a private agreement with the controlling stakeholder of T-Mobile US, which would help rule out the possibility of another interloper making a counterbid, one of the sources added.

Deutsche Telekom had been trying since 2011 to find a better path for T-Mobile USA after abandoning a sale of the company to No. 2 U.S. mobile provider AT&T for $39 billion because of opposition from regulators.

It recently merged the unit with MetroPCS Communications to create T-Mobile US, but the deal still left it with a controlling stake.

Under the terms of the MetroPCS deal, however, Deutsche Telekom has to wait for a certain period of time before it can sell its stake.

The two sources said SoftBank did not see that as a hurdle, as regulatory approvals and other steps required to close any deal would take months.