Sprint (S) Bails on T-Mobile (TMUS) Bid

Sprint (S) and T-Mobile (TMUS) , the third- and fourth-largest US wireless carriers, have ended talks of a merger after stiff opposition from the Federal Communications Commission (FCC) proved too difficult to overcome. All participants in the failed deal are falling in tandem — with T-Mobile shares down almost 7% but Sprint taking the biggest hit with a plunge of almost 20 percent on extremely heavy volume.

On the international market, Sprint parent company SoftBank Corp. (SFTBF) dropped 3.5% in Tokyo trading and T-Mobile’s parent company Deutsche Telekom ($DTEGY) is down almost 3%, its largest intraday decline since May 2013.

Why Sprint Gave Up on the Deal

FCC Chairman Tom Wheeler supported Sprint’s decision to rescind its T-Mobile bid. He stood by the administration’s goal of maintaining four national wireless providers for antitrust purposes. Wheeler offered a positive spin on the abandoned merger, saying in a statement, “Sprint now has an opportunity to focus their efforts on robust competition."

T-Mobile and Sprint have historically provided lower-cost alternatives to Verizon Communications Inc. (VZ) and AT&T (T) , the top two US providers Sprint was planning to challenge.

Japanese billionaire Masayoshi Son backed the nine-month effort to acquire T-Mobile. His mobile communications company, SoftBank Corp., purchased 70% of Sprint’s stock in 2013.

Son’s pursuit of T-Mobile has been attributed to his interest in reviving Sprint’s internal entrepreneurial spirit — T-Mobile CEO John Legere is notoriously offbeat, unabashedly calling competitors Verizon and AT&T “greedy bastards” and differentiating T-Mobile as the nation’s “Uncarrier.” T-Mobile’s aggressive price competition earned them 908,000 new customers in the three months through June.

Following Sprint’s withdrawal, T-Mobile received a takeover bid of $15 billion cash from French broadband provider Iliad (ILIAF) , which, if approved and accepted, would value T-Mobile shares at $36.20, a 14% premium over their current market value. However, people familiar with the offer are reporting that T-Mobile intends to turn down Iliad’s proposal as Sprint had reportedly been offering $40 per share.

Now that the T-Mobile acquisition has been taken off the table, the best Sprint can do is focus on internal improvements following past missteps. The company earned a promising $23 million in profit in its fiscal first quarter, but lost 245,000 subscribers. Sprint’s stock has not recovered since the disastrous 2005 merger with Nextel, and it is currently suffering from a year-to-date loss of 45.15%.

Pushing to Sprint Forward

Son didn’t just drop the fruitless bid for T-Mobile, he also replaced former Sprint CEO Dan Hesse with Marcelo Claure, founder of multibillion mobile-phone distributor Brightstar Corp. Dan Hesse had led Sprint since 2007 but has been unable to turn the company around.

Marcelo Claure "has the management experience, passion and drive to create the strongest network and offer the best products and services in the wireless industry” said Son in a statement. Brightstar focuses on phone distributions, and Claure’s experience in consumer relations is expected to encourage a turnaround in Sprint’s notoriously poor customer service. SoftBank currently owns Brightstar Corp. Claure will assume the executive role on Aug. 11.

Mr. Son has a history of smart acquisitions, and a recent $20 million investment what was then an obscure Chinese website has become a 37% stake in Alibaba Group Holding, which is preparing an initial public offering in the US market.

With Claure directing operations, it doesn’t look like Sprint will be making any more merger bids for a while, likely shifting its strategy to focus inward. “While consolidating makes sense in the long-term,” Claure noted, “for now, we will focus on growing and repositioning Sprint.”There is no clear indication of where Claure’s strategies will take the company as of yet, but it is clear that Son is moving quickly to salvage a struggling Sprint.