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(Reuters) – T-Mobile US Inc (TMUS.O) is engaged in a new round of talks to acquire Sprint Corp (S.N), a person familiar with the matter said on Tuesday, the latest effort to combine the third and fourth largest U.S. wireless carriers.
The combined company would have more than 127 million customers and could be in a stronger footing to compete against the No. 1 and No. 2 wireless players, Verizon Communications Inc (VZ.N) and ATT Inc (T.N), amid a race to expand offerings in 5G wireless technology.
It was not immediately clear what prompted the companies to try to clinch a deal for the third time in the last four years. Their previous round of negotiations ended in November over valuation disagreements. Since then, Sprint’s shares have lost more than a fifth of their value amid questions about how the company can compete effectively under the weight of its long-term debt of more than $32 billion.
The source asked not to be identified because the matter is confidential. Sprint declined to comment, while T-Mobile did not immediately respond to requests for comment.
Shares of Sprint were up 20.43 percent at $6.19, giving the company a market capitalization of $25 billion, while T-Mobile shares were up 6 percent at $63.38 on Tuesday afternoon, giving it a market capitalization of $54 billion, after the Wall Street Journal first reported on the new talks.
Sprint is controlled by Japan’s SoftBank Group Corp (9984.T), while T-Mobile is majority-owned by Germany’s Deutsche Telekom AG (DTEGn.DE). The issue of control at the combined company has been a thorny topic in previous negotiations over a possible deal.
Failure to clinch an agreement last November left SoftBank Chief Executive Officer Masayoshi Son, a dealmaker who raised close to $100 billion for his Vision Fund to invest in technology companies, in search of other options for Sprint.
Jonathan Chaplin, analyst at New Street Research, said if the companies are back in talks, he suspected the same structure as previously is on the table, with SoftBank CEO Masayoshi Son seeking control for Sprint.
Analysts have in the past said a combined company would cut costs by reducing cell-tower sites; shares of operators American Tower (AMT.N), Crown Castle International (CCI.N) and SBA Communications (SBAC.O) fell on the news.
TIME TO WAIT
Another analyst, Recon Analytics’ Roger Entner, said that T-Mobile had the time to wait for better terms.
“SoftBank has to change the way they approach this,” he said. “Unless they have changed their minds, (and admitted) that they are indeed the junior partner, nothing has changed.”
Even though Sprint’s customer base has expanded under CEO Marcelo Claure, growth has been driven by heavy discounting. Analysts have said that, without T-Mobile, Sprint lacks the scale needed to invest in its network and to compete in a saturated market.
“It is impossible for Sprint to sustain on its own, and the same problems still exists with SoftBank and Sprint not comfortable with a minority stake,” MoffettNathanson LLC analyst Craig Moffett said. “But ultimately you have to believe that these two companies will end up together even if the path to get there is torturous.”
Another roadblock to the deal could be regulatory hurdles. Sprint’s and T-Mobile’s first round of merger talks ended in 2014 after the Obama administration expressed antitrust concerns about the deal.
It is not clear how the Trump administration would view the combination. ATT agreed to acquire U.S. media company Time Warner Inc (TWX.N) in October 2016 for $85 billion. The U.S. Department of Justice has sued to block the deal over concerns about the companies’ pricing power in the media market. ATT and Time Warner are currently defending their deal in court.
Reporting by Greg Roumeliotis and Sheila Dang in New York and Munsif Vengattil and Laharee Chatterjee in Bengaluru; Editing by Diane Craft and Phil Berlowitz