T-Mobile U.S. Inc and Sprint Corp in exploratory merger talks

With both companies expecting touch negotiations with antitrust regulators, they are both keeping their cards close to their chest and have yet to disclose their respective potential concessions.

According to multiple sources familiar with the matter at hand, T-Mobile U.S. Inc and Sprint Corp plan on announcing their merger, without any immediate sale of assets.

Both parties aim to preserve the bulk of their spectrum holdings and cost synergies as much as possible, since they can then provide concessions to regulators when it is demanded of them.

While it is common for companies not to unveil divestiture plans during merger announcements, T-Mobile’s and Sprint’s approach shows that the companies expect challending negotiations with U.S. antitrust and telecommunications regulators without having made prior concessions.

Last week Reuters had reported that a few members from the U.S. Justice Department’s antitrust division were skeptical about the deal. However, regulators can only begin reviewing a merger only once when it has been agreed and announced.

T-Mobile and Sprint’s approach indicates a negotiation strategy to tackle demands from regulators regarding asset sales, including the divestment of some of their spectrum licenses after their deal is announced, said sources.

The merger is aimed at focusing potential benefits from upcoming 5G wireless technology, which requires big investments.

“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,” said Craig Moffett, a research analyst from MoffettNathanson.

The merger would create a business having 130 million U.S. subscribers, just behind Verizon Communications Inc and AT&T Inc.

Sources have preferred the cover of anonymity since the deliberations are confidential.

T-Mobile and Sprint declined to comment.

In a research note from John Hodulik, a research analyst from UBS, the U.S. Federal Communications Commission is likely to force Sprint and T-Mobile to make some divestitures of spectrum, since the combined company will have the most airwaves in the communication sector with more than 300 MHz, ahead of Verizon’s and AT&T’s holdings.

Earlier this year, T-Mobile spent $8 billion in a government auction of airwaves this year.

Having access to a wide spectrum is important for 5G wireless technology, which AT&T and Verizon hope to launch to better compete with cable companies.

Sprint shareholders expect little to no premium in the deal. SoftBank Group Corp, Sprint’s owner, is likely to have a 60% stake in the combined company, Sprint shareholders is likely to own 40% or less with Deutsche Telekom AG, T-Mobile’s owner, owning the balance amount.

Sources have cautioned saying the negotiations between T-Mobile and Sprint are yet to be concluded and may not result in a deal.

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