Why a Sprint, T-Mobile Merger Could Be On Again

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Before a telecom company can expand into what it sees as the more lucrative cable or content production markets, it needs scale. The never-ending story of a potential merger between Sprint Corp. (NYSE: S) and T-Mobile US Inc. (NYSE: TMUS) may be the necessary first step before a third competitor can take a meaningful run at Verizon Communications Inc. (NYSE: VZ) or AT&T Inc. (NYSE: T).

Sprint and Charter Communications Inc. (NASDAQ: CHTR) broke off merger negotiations last week. The result was similar to the talks about a possible tie-up between Sprint and Comcast Corp. (NASDAQ: CMCSA).

That leaves T-Mobile. If a deal between Sprint and T-Mobile is announced, the number three and four players in the U.S. wireless market are likely counting on a different result than the one they received in 2014 when the Obama administration’s Justice Department squashed the deal.

Could Sprint still stand on its own? CEO Marcelo Claure thinks so, but he also believes that combining with another wireless carrier or a cable company would make a stronger company. Trouble is, there are no cheap deals here.

Every time there’s talk of Sprint being acquired, the share price goes up. Same with T-Mobile. As for Softbank acquiring a company like Charter, such a deal would drive the Japanese firm’s debt levels to well above nosebleed levels and, for that reason alone, a deal has little chance actually happening.

Sprint stock traded flat Monday morning, at $8.70 in a 52-week range of $5.83 to $9.65. The consensus 12-month price target on the stock is $7.28.

T-Mobile shares traded up about 0.2%, at $64.62 in a 52-week range of $44.35 to $68.88. The consensus price target is $71.04.