Tower stocks climb back
Shares of Crown Castle, SBA Communications and American Tower were hit hard on Tuesday by the resurgence of reports that T-Mobile and Sprint will try to merge. If the two carriers eventually become one, they will only need one set of radio equipment at each tower, which would reduce rents for the tower companies. The big three tower stocks all tumbled 4% or more yesterday, but today they are all slightly higher.
Could it happen this time?
Could T-Mobile and Sprint finally pull the trigger? Wall Street analysts started crunching some familiar numbers this week, but some of the analysis now is a guessing game, because it isn't clear how much of the cost savings the deal could create have been eliminated by Sprint's current network investment.
"It is clear that there are still huge synergies in a merger between these two companies. However, Sprint’s recent tower and fiber contracts might have reduced those synergies," wrote analyst Walt Piecyk of BTIG. "We believe Sprint has signed an MLA with SBA and a new fiber to tower contract with Zayo in order to finally invest in its deep spectrum asset. We estimate that Sprint will burn $3.5 billion of cash over the next two years, further eroding equity value in order to deliver a competitive network."
After Sprint's deal with T-Mobile fell apart last fall, executives from both companies told investors they regretted the fact that their parent companies (SoftBank and Deutsche Telekom) could not come to terms. T-Mobile CFO Braxton Carter
said
the deal would have created at least $37 billion in synergies. Analyst Craig Moffett of MoffettNathanson wrote yesterday that the merger could have created up to $40 billion in synergies.
"Transactions that offer as much as $40 billion in synergies aren't easily abandoned," wrote Moffett. "Sure, all the regulatory challenges are still there, but the exchange ratio has gotten better between the two, making a deal more feasible now."
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