Shares of Sprint (S) are plunging in late-morning trading amidst media reports that its planned acquisition of T-Mobile US (TMUS) fell apart because of concerns about financing the deal and worries that it wouldn't pass regulatory scrutiny.
Sprint, which is based in Overland Park, Kansas, recently changed hands at $5.95, a down about 18 percent. T-Mobile, whose innovative marketing has shaken up the U.S. wireless market, also slumped, trading at about $31.54, down 7 percent. The company is an affiliate of Germany's Deutsche Telekom. In a separate development, Sprint also is replacing CEO Dan Hesse, who has also been the company's television pitchman for years, with Brightstar Corp founder Marcelo Claure, according to a company statement.
The collapse of the deal to combine Sprint, the third largest wireless company, and T-Mobile, the fourth-largest player, represents a setback for Softbank CEO Masayoshi Son, the Japanese billionaire whose firm gained control of Sprint in a $21.6 billion deal last year. Son and others have repeatedly argued that the U.S. wireless industry was ripe for consolidation. He hired a team of Washington lobbyists to help press his case and even appeared on "The Charlie Rose Show."
Unfortunately, U.S. regulators have been equally as adamant about what they see as the need for four wireless providers.
"This is just an echo of what happened several years go with the AT&T and T-Mobile [deal]," said Jeff Kagan an independent telecommunications business analyst, referring to a $39 billion transaction that regulators blocked in 2011. "Based on that it seemed like it was an uphill battle. It seemed the regulators apparently stuck to their guns."
T-Mobile, which has added 4 million postpaid customers over the past 5 quarters, may attract other bidders such as France's Iliad and Dish Network (DISH), which made an earlier offer for T-Mobile only to be pushed aside by Softbank. DISH CEO Charles Ergen, who also is a billionaire, has said he would be interested in buying Sprint if the T-Mobile deal fell through.
According to Bloomberg News, Sprint is now "in more of a bind than T-Mobile." Indeed, Sprint has been in free fall for years because of its disastrous Nextel merger, though it finally ended more than six years of losses in the fiscal first quarter with a $23 million profit. Sprint, though, lost 245,000 contract customers in the first quarter.
The future, however, isn't entirely bleak for Sprint thanks the turnaround begun by Hesse. Demand for wireless services will continue to rise in new markets such as health care where doctors are helping treat patients over Internet video hook-ups. Automobiles are another growth market.
"Sprint was collapsing and he stabilized the company," Kagan said. "He has prepared the company for the next chapter."