Third Point LLC, the hedge fund founded by activist investor Daniel Loeb, bought a stake in wireless carrier T-Mobile US Inc. (TMUS), betting that the company could be acquired by Sprint Corp. (S) or Dish Network Corp. (DISH)
Third Point bought shares at $25 apiece when T-Mobile conducted a secondary offering in November, Loeb said today in a letter to investors. Third Point was attracted by T-Mobile’s takeover prospects, as well as its improving operating performance and relative valuation compared with peers.
By investing in T-Mobile, Loeb now has a position on both sides of a potential merger. His firm has a stake in SoftBank Corp. (9984), the Japanese wireless carrier that owns Overland Park, Kansas-based Sprint. While such a deal between Sprint and T-Mobile might face antitrust hurdles, it also would create a stronger challenger to Verizon Wireless and AT&T Inc., he said.
“The combination of Sprint and T-Mobile creates the only real counterbalance to a decade-long market- and profit-share grab by the industry’s two largest players,” said Loeb, a billionaire who serves as Third Point’s chief executive officer. If SoftBank combined Sprint with T-Mobile, the new company also could see $20 billion to $30 billion in cost savings, he said, citing analyst data.
T-Mobile and its CEO John Legere have made market-share gains in the past year by attacking industry practices, including long-term contracts, and offering lower-price plans. That maverick spirit is seen as a potential impediment to a Sprint deal, Loeb said. Regulators may be resistant to approve a merger if it eliminates a company that’s rattling competitors.
Still, that attitude ignores the fact that SoftBank CEO Masayoshi Son, who has vowed to build his company into the world’s largest wireless carrier, is the “ultimate maverick” and would preserve T-Mobile’s rebellious spirit, Loeb said. Son “would likely look to convert substantial synergies into market-share gains, enabled by amplifying the innovative business practices.”
Loeb also disclosed an activist stake today in Dow Chemical Co. (DOW), where he called for a share buyback and a spinoff of its petrochemicals business. And he said the fund had amassed about 9.5 percent of Ally Financial Inc. through a series of private transactions.
Third Point, which returned 26 percent on its investments in 2013, reported increased holdings in Intrexon Corp. (XON), the synthetic biology services provider that Third Point had invested in privately since 2011. That company held its initial public offering in August.
Activist funds like Third Point generally acquire equity stakes in companies and try to force corporate management and boards to make changes that boost share prices and investor returns.
In 2013, Loeb took activist stakes in targets such as Sony Corp., where he called for a partial sale of the Japanese company’s entertainment unit; CF Industries Holdings Inc., where he agitated for a larger dividend; and Sotheby’s, where he pushed for new leadership and more efficient operations.
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