Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Masayoshi Son needs a deal.

A big American albatross continues to hang around his neck, and with grand plans for taking over the world -- $100 billion at a time -- that big bird is starting to weigh heavy.

No wonder then that SoftBank Group Corp.'s chairman may actually be willing to give up control of Sprint Corp. in order to effect a merger with T-Mobile US Inc., as Reuters reported, citing people familiar with the issue.

Actually, if Masa has any chance at all of pulling off a merger, second fiddle is exactly what he's going to have to play.

Not because that's what U.S. regulators will ask of the two parties; not because debt holders will demand it; not because any of the partners in his new SoftBank Vision Fund will expect him to focus more on managing their money than playing around with a second-tier telco; but because that's the economic reality of Sprint's position.

Marathon, Not Sprint
Sprint has failed to grow its business and had to watch as T-Mobile US overtook it in quarterly sales
Source: Bloomberg

The tables have now turned and Sprint has tumbled from being as much as 59 percent more valuable than its intended merger partner, to 30 percent smaller. And let's be honest, there's no such thing as a merger of equals. Despite what bankers, PR statements and golden-parachute-toting executives tell you, there's only a buyer and a target.

Turned Tables
T-Mobile has now overtaken Sprint in market value, placing it in the driver's seat for any possible merger
Source: Bloomberg

That means that instead of being the hunter of a Deutsche Telekom AG unit, SoftBank now hopes that it will be hunted by the German giant. As Reuters pointed out, formal discussions can't happen now because of anti-collusion rules that prevent talks during a spectrum auction that's taking place.

But when contacts can continue, around April, it's unlikely that Sprint will be any stronger than it is today. A gain in the stock would be due to merger talks, not some fundamental change Masa has made to the company.  In fact, as I argued earlier this month, the evidence points to Sprint not even bothering to build a long-term sustainable business -- where revenue grows and capital expenditure is made to boost network quality and coverage.

(Under) Invest in the Future
SoftBank proudly points out that Sprint spends less on capex than U.S. competitors
Source: SoftBank Feb 8, 2017 presentation to investors
Note: Period covers April to Sept. 2016.

Instead, what Son has done to pave the way for a deal is to shake Donald Trump's hand and pledge $50 billion (mostly of other people's money) to invest in the U.S. When merger talks do resume, expect Deutsche Telekom to remember what SoftBank really brings to the table.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net