According to industry grapevines, T-Mobile US Inc. (TMUS - Free Report) and Sprint Corporation’s (S - Free Report) strategic decision to divest prepaid wireless service — Boost — to gain regulatory approvals for their merger has stirred up interest of potential suitors. The latest firm that reportedly entered into the buyout fray is Amazon.com Inc. (AMZN - Free Report) . Although spokespersons from the related entities have declined to comment on the buzz, Amazon’s penchant for unconventional business ventures gives us enough reason to take note of such developments.
In April 2018, T-Mobile and Sprint had inked an agreement to merge in an all-stock transaction. The companies expect the transaction to close in the first half of 2019. The deal will help accelerate development of faster 5G wireless networks. The New T-Mobile would have about 127 million customers. It will have a strong closing balance sheet and a fully funded business plan with a strong foundation of secured investment grade debt at close. The combined entity will be a force to reckon with in the U.S. wireless, video and broadband industries, boasting a network capacity for a nationwide 5G network deployment. Both the companies have already received respective shareholder approvals related to this game-changing transaction.
However, the Federal Communications Commission initially offered stiff resistance toward the deal on grounds that the merger of the third and fourth largest carriers in the domestic market would stifle competition and lead to monopolistic trade practices. In order to win over the anti-trust rules and secure regulatory approvals, the companies decided to divest Sprint’s prepaid wireless brand Boost. This is not likely to harm the combined company much as T-Mobile has a successful prepaid brand — Metro (formerly Metro PCS). Metro reportedly has 21.1 million prepaid customers while its biggest competitor AT&T Inc. (T - Free Report) has 17.2 million.
The commitment has ensured a clearance from the Federal Communications Commission and now awaits consent from the U.S. Department of Justice. As the long-pending merger is stuck in a mandatory go-ahead decision, the purported divestment has attracted fair bit of interest from diverse fields.
Amazon is reportedly expecting the buyout to gain access to the new T-Mobile's wireless network for at least six years. Per industry sources, the company is also keen to buy any wireless spectrum that could be divested to get regulatory clearance. Notably, Amazon has already been offering phone calls through its Echo Connect product, which uses a person's home phone service and allows an Alexa-enabled voice-activated speaker to make phone calls. The probable acquisition of Boost prepaid wireless service would give Amazon a solid footprint in the market to further tap additional revenues by offering its services to a dedicated customer base.
Meanwhile, the Department of Justice will likely scrutinize the buyer of the divested asset to ensure that it stays viable and preserves competition. It remains to be seen if at all Amazon is given permission to acquire the divested business to mark the entry of a new player in an already saturated market.
While Sprint carries a Zacks Rank #3 (Hold), T-Mobile currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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