Sprint Corp. board members Masayoshi Son and Dan Hesse met
recently with Justice Department officials who said they would view
a Sprint acquisition of wireless rival T-Mobile US Inc. with
skepticism, people briefed on the conversation said.
The conversation, which occurred in January, shows the
seriousness of Mr. Son's interest in a deal, and his highest
hurdle. U.S. antitrust authorities regard the current lineup of
four national mobile-phone carriers as important to maintaining a
competitive market, and department officials indicated at the
meeting that a deal combining Sprint and T-Mobile could face
regulatory difficulties, the people said.
It doesn't appear the meeting has deterred Mr. Son, who has been
the driving force behind the effort to merge Sprint, the
third-largest U.S. carrier by subscribers, with No. 4 T-Mobile.
Some of the people briefed on the meeting came away with
differing impressions of the level of the Justice Department's
concern about such a deal.
Mr. Son's SoftBank Corp., the Japanese technology company that
bought a majority stake in Sprint last summer, and Deutsche Telekom
AG, the German company that owns about 67% of T-Mobile, have been
in talks about merging the two U.S. carriers, people familiar with
the matter said.
Sprint got assurances from banks earlier this month that a deal
to buy T-Mobile for around $31 billion could win financing, people
familiar with the matter said. Junk bonds like those that would be
sold to finance such a deal have been hit by recent market turmoil,
but conditions remain relatively favorable.
The parties are working through remaining issues including the
size of any breakup fee that would be paid if the deal fell apart,
who would lead the combined company and whether it should be called
T-Mobile or Sprint, the people said. Those issues could take time
to resolve, they said.
Justice Department antitrust officials, who review deals for
possible harm to competition, are known to welcome meetings with
executives ahead of mergers and acquisitions, but they usually are
careful not to signal their views on a deal too strongly before
giving it a full review.
Representatives of US Airways Group and AMR Corp. sounded out
Justice Department officials before announcing their merger as
well, but later ran into trouble when the department sued to block
the merger. Ultimately, the airlines worked out a settlement that
involved giving up some takeoff and landing slots, among other
concessions.
The Federal Communications Commission, the nation's top
telecommunications regulator, also reviews telecom transactions to
determine if they are in the public interest.
The Justice Department meeting was one of a series of
discussions Messrs. Son and Hesse plan to hold with regulators and
lawmakers.
The discussions involve more issues than just the possible
T-Mobile deal, including the introduction of new technologies and
wireless competition in an industry considered heavily regulated,
said a person familiar with the talks.
The message from regulators shouldn't have come as a surprise.
In April, the Justice Department wrote in a comment letter to the
FCC that the four wireless carriers competed in ways that are
important to consumers. The FCC has sent similar signals.
Sprint, SoftBank, T-Mobile and Deutsche Telekom are all involved
in the takeover talks and are debating how best to structure a
deal, the people said. They are also contemplating approaches to
get a deal past the Justice Department.
A key argument for Sprint and T-Mobile is likely to be that
market leaders Verizon Wireless and AT&T Inc., which account
for more than two-thirds of the U.S. industry's subscribers and
nearly all its profits, won't face any significant competition
absent a merger, and that their advantage over smaller carriers
will only grow larger over time, people familiar with the matter
said. The industry may be going through a competitive spurt now,
but it isn't likely to last, they said.
Three years ago the Justice Department shot down a $39 billion
deal for AT&T to buy T-Mobile, lauding the smaller company's
role as a price-cutting maverick. T-Mobile has stepped up its
aggressive tactics in the past year, getting rid of industry
standbys like service contracts and international data roaming
fees,and has started reversing a long slide in its customer
base.
T-Mobile's resurgence might leave regulators less inclined to
approve a deal. Justice Department officials regard T-Mobile's
strides since the demise of the AT&T deal as good for consumers
and competition, said people familiar with the matter.
The turnaround has been led by T-Mobile Chief Executive John
Legere, who nevertheless has said consolidation is needed, and has
argued that T-Mobile would impart its competitive drive to a
combined company. "I think what we're doing in any scenario we will
prevail," he said at a press event this month in Las Vegas.
Gautham Nagesh contributed to this article.
Write to Ryan Knutson at ryan.knutson@wsj.com and Brent Kendall
at brent.kendall@wsj.com
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