French Company Iliad (EPA: ILD) Battles Sprint (NYSE: S) for T-Mobile (NYSE: TMUS)

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By Mark Michaels on August 1, 2014 Technology & Software

A new turn of events happened in the long drawn out battle for T-Mobile US Inc. (NASDAQ: TMUS) yesterday, July 31^st. French company Iliad SA (EPA: ILD) entered the competition by making an offer to buyout T-Mobile, rivaling Sprint Corp (NYSE: S)’s previous offer.

Iliad is a telecom operator based in France. The company offered $15 billion for 56.6% of T-Mobile.

This new addition to the battle for T-Mobile instilled uncertainty into the possibility of a merger with Sprint and T-Mobile. Sprint had been in talks with T-Mobile for six months now about acquiring the latter company. The two parties have already agreed to broad guidelines of a deal that values T-Mobile at approximately $32 billion – which is more than what Iliad is offering. However, Sprint may not have T-Mobile on its side just yet.

T-Mbile is the fourth largest cellphone company in the United States. Sprint is the number three largest player in the cellphone market in the country. The company is majority owned by Japanese telecommunications company SoftBank Corp (TYO: 9984).

By acquiring T-Mobile, Sprint is trying to create a joint company that is able to stand up to leaders in the market such as AT&T Inc (NYSE: T) and Verizon Communications Inc (NYSE: VZ).

Sprint’s desire for a deal with T-Mobile is also heavily protested by antitrust regulators, who have made it known that they will not stand for further consolidation within the top companies in the industry.

Iliad is taking advantage of the delay of Sprint and T-Mobile announcing a deal. The French company is claiming that its deal will not violate an regulations regarding antitrust. Sprint has not yet released a formal offer for T-Mobile.

A representative fro Iliad stated that the company is attracted to the large mobile market in the United States. The company claims that it is similar to T-Mobile in that T-Mobile has built a disruptive position in the United States, much like how Iliad has done the same in France. Iliad is known in France for instigating a price war in the mobile and telephone market in the country.

T-Mobile has refused to comment of the offering after having confirmed it had received it.

SoftBank feels that the offer from Sprint will yield much better results for both Sprint and T-Mobile.

Iliad’s offer raises many questions – mostly about how the company, which is valued at $16 billion, could possibly make a deal for T-Mobile, a company whose market value was $25 billion before the offer.

According to a report from Iliad, the company made T-Mobile an offer of $33 per share for a 56.6% stake. Iliad would fund the 100% cash offer by raising both equity and debt. Additionally, the company said that the 43.4% left of T-Mobile would be valued at $40.50 per share, based on the predicted synergies of $10 billion. Ths, T-Mobile’s overall value would be $36.20 per share.

On the other hand, Sprint is prepared to pay roughly $40 per share for T-Mobile.

Analysts from Credit Suisse wrote that they are skeptical that T-Mobile, its majority shareholders, and Deutsche Telekom will find the Iliad offer appealing. However, the bid could pressure Sprint to take action sooner to secure the deal.

The stock of T-Mobile increase 6.5% to $32.94 after Iliad’s offer was made public. This jump in price could reflect the possibility of T-Mobile maneuvering itself in negotiations with Sprint and getting a better deal. On the other hand, stock prices of Sprint decreased 5.3% to $7.35.

Prior to the news about Iliad, T-Mobile’s chief executive John Legere hinted during a call analysts that the company had other options besides Sprint for deals.

The clash between Sprint and Iliad also brings together two strong personalities – Xavier Niel of Iliad and Masayoshi Son of SoftBank.

Son is known in Japan for overturning the Japanese telecom industry, and has made his company one of the market leaders by cutting prices to compete against rivals.

Niel is also known for causing trouble in the French telecom industry with similar metods. However, Iliad’s bid for T-Mobile is the boldest move Niel has made yet – Iliad has only made on acquisition throughout its 20 year run, and has no experience merging the company with one that is the size of T-Mobile. The company also has no power outside of France.