Merger Between Sprint And T-Mobile - Research Paper Example

Download file to see previous pages because the two carriers have been struggling with the churn which has resulted to the two companies losing grounds to the Verizon Wireless and AT&T carriers. The merger will help in finding a spectrum path in succeeding. For the purposes of Deutsche Telekom to grow T-mobile, the best strategy may be to merge because as it was seen, the strategy worked for Verizon when it took over Alltel. This merger will offer T-mobile an opportunity to offer new services, gain new customers, and also present an opportunity for expansion. The financial position of Sprint reported a Q4 net loss and an operating revenues drop of 14 percent over the past years period. This issue of finance is mostly important to T-mobile parent which is Deutsche Telekom DT and thus a merger with a US carrier is the best strategy. T-mobile suffers from a lack of compelling products and services and thus it is hindered from competing in an effective manner. A merge possibly with an existing carrier is therefore the fastest way that will help T-mobile to penetrate today’s market and grow. Based on the current size, the combination of Sprint and T-mobile will accumulate a close of a total number of 82 million subscribers and annual service revenues of $11 million. There are 11 million more subscribers in Verizon wireless and 5 million more subscribers in AT&T carrier (Butcher, 2011) Due to slightly lower ARPUs, there will be much work that needs to be done on the merger so as to catch up with the carriers that are on the top two because both Sprint and T-mobile are running above twice the churn in monthly estimates of the two leading carriers. This means the carriers are operating at above 3 percent against 1.5 percent. Deutsche Telekom AG was holding talks to Sprint Nextel Corporation to sell its T-mobile USA, a major stake in the entity that is combined as the consideration. A deal might as well not be agreed upon because these negotiations have been on and off for a sometime. The T-mobile USA valuations haven’t been agreed upon by the companies because the company reported a decline in its reported profits. The merger involving Sprint and T-mobile of USA brings together, a third and fourth largest wireless provider in U.S. These companies are behind Verizon Wireless and AT&T Inc. The net worth of T-Mobile of U.S was between $ 15 and $ 20 billion. The sprint net worth was $13.6 billion. The price of Sprint, the acquirer may disappoint Deutsche Telekom because the buyer may pay less reason being customer losses. Basing on the unit’s earnings, the company may expect about $25 billion (Saitto et al, 2011) Considering Verizon wireless has 93 million subscribers, AT&T has 85 million subscribers, a combined sprint and T-mobile will put them behind a third placed carrier which is very strong with about 82 million. This puts them in a very competitive position of becoming the second positioned carrier. T-mobile has a sales price of $39 billion which is three times its net worth of $13 billion. This means that it would result to Sprint having more debts of worth billions which will increase its total leverage. Market capitalisation of sprint has ranged between $13 billion to around 16 billion since the merger was announced. Sprint will thus be required to borrow billion of dollars to fund the merger which will double its current leverage of $20 billion of long term debts. By year 2010, sprint had 138 percent debt to equity ratio meaning purchase of T-mobile would ...Download file to see next pagesRead More