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Originally published July 31, 2014 at 9:19 AM | Page modified August 1, 2014 at 9:58 AM

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It’s Iliad vs. Sprint as T-Mobile US gets another suitor

French mobile-phone carrier Iliad offered $15 billion in cash for a controlling stake in Bellevue-based T-Mobile US, rivaling a proposal from Sprint.


Bloomberg News

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Sprint and T-Mobile deserve eachother...they're the two worst providers. MORE
I hope Sprint sees the long-term advantage in keeping the Factoria campus staffed. Seattle is a great place to live... MORE
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French mobile-phone carrier Iliad offered $15 billion in cash for a controlling stake in Bellevue-based T-Mobile US, rivaling a proposal from Sprint.

T-Mobile parent company Deutsche Telekom considers the $33-a-share offer for a 56.6 percent stake as not competitive and inferior to a separate bid planned by Sprint, said a person familiar with the matter. Masayoshi Son, the billionaire whose SoftBank owns Sprint, is said to be working on an offer of about $40 a share for T-Mobile.

The emergence of a rival bidder puts pressure on Son to push ahead with his plan to merge the third- and fourth-largest U.S. wireless carriers.

Iliad said it had submitted its proposal to T- Mobile’s board. T-Mobile confirmed Thursday in a regulatory filing that it received the proposal and said it had no further comment.

Deutsche Telekom, which owns two-thirds of T-Mobile, isn’t in formal talks with Iliad, said the person familiar with the matter, who asked not to be identified because the situation is private.

“This probably throws a wrench in SoftBank’s plans,” said Jan Dawson, an analyst with Jackdaw Research in Provo, Utah. “With another potential bidder, they may not be able to wait this out. It probably forces them to act faster and could raise the price they were willing to pay.”

The boards for Deutsche Telekom and T-Mobile still see significant hurdles to a merger with Sprint that need to be addressed before a deal is announced, according to two people familiar with the matter. Some of the concerns are regulatory and some involve the deal structure, the people said. Any deal with Sprint won’t be announced before September, another person said.

Andreas Fuchs, a spokesman for Bonn-based Deutsche Telekom, and Roni Singleton, a Sprint spokeswoman, declined to comment.

Iliad’s cash offer would be financed with debt and equity, and the proposal values the remaining portion of T-Mobile at $40.50 a share based on $10 billion in potential savings to be shared between the two companies, Iliad said. There’s no certainty the board will accept the proposal, it said.

T-Mobile stock jumped 6.5 percent to $32.94 Thursday, while Sprint shares fell 5.3 percent to $7.35.

While the Iliad offer is lower than the one SoftBank is said to be proposing, it does come with an advantage in terms of regulatory approval. By combining with a foreign company instead of a U.S. rival, T-Mobile wouldn’t be reducing the number of American wireless carriers from four to three. U.S. regulators have indicated they prefer not to reduce the number of competitors.

“One key benefit of having Iliad as a suitor is it would not be a ‘4 to 3’ deal like TMUS/S is,” said Stephen Sweeney, a strategist at Elevation, referring to T-Mobile and Sprint by their ticker symbols. “It would have a much easier time getting regulatory approval,” he wrote in a note to clients.

Even if it rejected an initial offer from Iliad, the priority for Deutsche Telekom’s management is getting out of the U.S., according to two people familiar with the matter. It would be open to forgo some sales proceeds in exchange for lower risk of rejection by regulators, they said.

The offer may spark a bidding war for T-Mobile, Sweeney said. He estimates the company’s fair value at $38 a share.

Sprint and T-Mobile had been planning for the U.S. regulatory review to take at least a year, people familiar with the matter said earlier this year.

Iliad said it has the support of international banks to fund the offer for T-Mobile. Iliad has a market value of 12 billion euros ($16 billion). With Thursday’s stock gain, T-Mobile is valued at $26.6 billion.

“Iliad is about a third of the size of T-Mobile US, and we don’t think there would be synergies from the deal,” Jonathan Chaplin, an analyst at New Street Research, said in a note. “It would be tough to finance without (Iliad founder) Xavier Niel relinquishing control. Sprint and anyone else with synergies should be able to outbid them.”

Like Iliad, whose deeply discounted subscriptions forced larger carriers to sacrifice profits to keep up, T-Mobile, which has about 4,000 employees in Factoria, has roiled the U.S. wireless industry in the past two years. The company, led by CEO John Legere, started a trend by offering no-contract plans, separating the cost of smartphones from payments for wireless service.

Legere, like Niel, has built a reputation as a maverick, taunting rivals on Twitter and once crashing an industry party held by bigger rival AT&T.

Niel, 46, whose holdings include the rights to the song “My Way,” introduced Iliad’s Free Mobile two years ago with a monthly fee that was less than half what larger competitors were charging. He is France’s fifth-wealthiest person, according to the Bloomberg Billionaires Index.

While T-Mobile has put pressure on competitors to cut prices, wireless fees are still higher in the U.S. than in France. Carriers got $48.17 a month of revenue per user in the U.S. in the fourth quarter, compared with $32.51 in France, according to research firm Informa.

If Iliad succeeds in taking over T-Mobile, preserving the U.S. as a four-carrier market, AT&T, Verizon Communications and Sprint could all face tougher competition, said Elevation’s Sweeney.

T-Mobile “has already been very aggressive with its un-carrier strategy — with Iliad as a new corporate parent, it would theoretically be even more aggressive, which would be bad for all three of the other U.S. carriers,” Sweeney said.

T-Mobile needs more investment to compete with AT&T and Verizon, Legere said in an interview Thursday before the report of the takeover offer was published.

“We have two players that are significantly bigger than the others,” Legere said in an interview on Bloomberg Television. “Little by little we are attacking them, but there are multiple things to consider.

‘‘If I really want to bring long-term competition and lead this entire industry, capital is important,’’ he said. ‘‘Various accelerants exist — they exist internationally, they exist domestically.’’

Information from Bloomberg reporters Matthew Campbell in London, Alex Sherman in New York and Cornelius Rahn in Berlin is included in this report.



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