The two companies have been in talks for years about a possible merger and are finally close to reaching a deal that would see Sprint offering $40 for every T-Mobile share, a 17 percent premium on the latter's closing stock price Wednesday. Sprint is offering 50 percent in cash and the other half in stock, leaving T-Mobile's parent company, Deutsche Telekom, with only 15 percent of the merged company.
Talks are still underway and there is a possibility that the deal could still fall apart, but news of the acquisition suggests a turning point in the long-contemplated merger. The deal will benefit both parties as they have struggled to keep up with Verizon Wireless and AT&T, who have at least 100 million subscribers each and continue to grow.
"In order to compete against the big two, AT&T and Verizon, scale is essential," said Satoru Kikuchi, an analyst at SMBC Nikko Securities Inc. in Tokyo. "The mobile-phone industry is an industry that needs business investment, so the larger the better."
Neither Sprint or T-Mobile have the financial resources to take on their larger competitors, nor the suite of offerings to attract customers. The two companies are choosing a merger as a way to be competitive and stay relevant.
Deutsche Telekom has been attempting to offload its investment in T-Mobile and reduce its exposure in the U.S. The company failed to close a deal with AT&T in 2011 to sell T-Mobile for a price similar to that being offered by Sprint.
Should the deal go through, Sprint and T-Mobile officials will have to face regulatory scrutiny. The Justice Department is already considering two mega deals in Comcast's proposed acquisition of Time Warner Cable, and AT&T's proposed deal for DirecTV.