Deals

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.

Someone might want to remind SoftBank Group Corp.'s board that it doesn't exactly have the upper hand in merger negotiations between Sprint Corp. and T-Mobile US Inc.

SoftBank -- which owns about 84 percent of Sprint -- is reportedly wavering on whether it's willing to let T-Mobile's parent company Deutsche Telekom AG control the combined telecom entity. Sprint shares promptly dropped as much as 13.5 percent before recouping some of those losses; as of 2:01 p.m. in New York, they were still down 4.5 percent. 

We -- like investors -- are scratching our heads as far as SoftBank's strategy here. Sprint reported yet another quarterly loss last week, underlining just how badly it needs a combination with T-Mobile to help staunch its cash bonfire and unprofitable attempts to win over customers. SoftBank's proposed alternative to the merger, per the Wall Street Journal, is to double down by making a significant investment in Sprint's network. Let's hope its suppliers take Monopoly money.  

Sprint to the Finish? Not Quite
Since SoftBank revived its interest in a Sprint-T-Mobile deal, Sprint's shares have underperformed. Masayoshi Son may be angling for a way to land a better exchange ratio.
Source: Bloomberg

This abrupt shift in the company's stance may be an attempt to get more attractive terms, but as far as negotiating tactics go, it's curious. This news is competing against previous reports that said SoftBank was open to ceding control in order to ensure the deal gets done. T-Mobile needs a merger, too, as Gadfly's Tara Lachapelle has noted. But it doesn't need one as badly as Sprint does. With a market value that's about double Sprint's, it's clearly the stronger partner in these negotiations, and Deutsche Telekom has every right to demand a controlling stake.

SoftBank Chairman and founder Masayoshi Son has tried desperate ploys before, reaching out in recent months to Warren Buffett and John Malone about a possible deal with Sprint. Malone-backed Charter Communications Inc. had this to say about a rumored combination with Sprint: "We understand why it is attractive for SoftBank, but Charter has no interest in acquiring Sprint." Shut down. Dish Network Corp. shares surged on the prospect a stumble in the T-Mobile talks could thrust Sprint into its arms. But Sprint's best possible partner is T-Mobile. 

Ripples
An aborted Sprint-T-Mobile deal would have implications -- and not just for the would-be partners. Dish, a potential target for Sprint, surged on news the deal may have hit snags.
Source: Bloomberg

Eventually, Son and SoftBank's board will have to stop playing games if they really want to rid themselves of Sprint's financial headaches. Handing over control of the combined entity may be a blemish on Son's deal-making prowess, but at a certain point, it's time for SoftBank to cut its losses before Sprint gets stuck with no partner at all.

--With assistance from Gillian Tan

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

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net