Shares of T-Mobile (TMUS - Free Report) and Sprint (S - Free Report) moved higher on Tuesday morning, this time on the back of a new report that the two wireless carriers are “in active talks” regarding a merger.
According to sources cited by CNBC, both companies and their respective parents, Deutsche Telekom (DTEGY - Free Report) and Softbank (SFTBY - Free Report) , have engaged in “frequent conversations” related to a stock-for-stock merger that would see Deutsche Telekom emerge as the majority owner of the new wireless giant.
Nevertheless, CNBC’s sources said that the companies are still “weeks away from finalizing a deal” and there is still a chance the merger could fall through. Apparently, the two sides have not yet agreed on an exchange ratio for the deal.
Still, the news was enough for investors to get excited about both stocks. T-Mobile shares gained over 3% in early morning trading hours on Tuesday, while Sprint climbed nearly 8%.
Today’s rumors are the latest twist in what has been an ongoing story ever since Softbank completed its acquisition of Sprint in mid-2013. Softbank’s enigmatic CEO, Masayoshi Son, has been an outspoken proponent of the deal, but the two sides have thus far been met with regulatory headaches and differing expectations.
In fact, the companies had advanced to the late stages of merger talks as far back as 2014, but the Obama administration quashed the deal, opting to maintain a four-player mobile market.
For the third and fourth-largest players in that market, however, consolidation seems like a reasonable goal. A combined T-Mobile/Sprint would still fall behind both AT&T (T - Free Report) and Verizon (VZ - Free Report) in number of wireless subscribers, but the new company would create billions in cost synergies almost immediately.
What’s more, M&A activity in the broader telecom and media space continues to heat up, and with the rollout of 5G networks set to begin over the next few years, the wireless carrier industry is on the cusp of what should be a transformational period.
For now, investors will have to wait and see whether all parties involved can agree on an exchange ratio—and the leadership structure of the new company. All accounts indicate that T-Mobile CEO John Legere would be at the helm of the merged brand, but Son has also said that he wants a say in the direction of the company.
Make sure to check back here at Zacks for the latest updates to this ongoing story!
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