Sprint Corp (S) Stock’s Best Bet: Charter Communications, Inc. (CHTR)

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Speculation is mounting that T-Mobile US Inc (NASDAQ:TMUS) will buy Dish Network Corp (NASDAQ:DISH), America’s second-largest satellite service. Once thought to be a good candidate for both T-Mobile and Sprint Corp (NYSE:S), it appears as though T-Mobile has the inside track, which should hurt Sprint stock.

Sprint Corp (S) Stock's Best Bet: Charter Communications, Inc. (CHTR)

Or does it?

Negotiations are not taking place right now because competing bidders in the FCC’s spectrum auction aren’t allowed to communicate with each other, and won’t be until the auction ends in the near future.

Thus, any tie-up at the moment is pure fantasy — a game that Sprint stock analysts and media (including myself) seem all too ready to play.

T-Mobile and Dish

T-Mobile CEO John Legere laid out the rationale for DISH seeking a wireless partner at the Consumer Electronics Show in early January.

“Rumors for years that (Dish is) getting into wireless, it’s a declining TV business and it has a big pile of spectrum. This is going to run its course in 2017,” Legere told the CES audience. “By the end of 2017, Dish will not be a standalone entity. So dealer, next hand of cards. Charlie (Dish CEO Charlie Engren), thanks for playing.”

T-Mobile just delivered strong fourth-quarter profits that beat analyst expectations. Adding more than 8 million subscribers for the third consecutive year, four wireless carriers is proving to be good for consumers, making a T-Mobile/Sprint tie-up less likely to get approval from the Trump administration.

So, DISH either saddles up to T-Mobile or Sprint.

Wireless expert Mark Lowenstein believes that the wireless companies will ultimately need the cable companies as much as they currently need wireless.

“Owning Charter will help Verizon’s in 5G, and getting to a more critical mass in broadband homes provides Verizon with more options in a hybrid fixed/mobile broadband world,” Lowenstein recently wrote in FierceWireless. “The worlds of cable and wireless will ultimately merge in some form.”

Therefore, in his opinion (and I tend to agree), it makes perfect sense for T-Mobile to merge with Dish Network or Charter.

However, given T-Mobile and Dish already had merger discussions back in 2015 — which failed due to valuation concerns — Legere and Engren are already familiar with each other and the sticking points from previous negotiations, making a deal more likely a second time around.

Plus, if Verizon Communications Inc. (NYSE:VZ) is in fact interested in acquiring Charter Communications, Inc. (NASDAQ:CHTR), T-Mobile is less likely to be able to pull off such a deal even with the backing of parent Deutsche Telekom AG (ADR) (OTCMKTS:DTEGY).

T-Mobile and Dish would be more a merger of equals, if there was such a thing.

Sprint Stock Could Be Left in the Cold

That leaves Sprint potentially out in the cold, an outcome that would absolutely kill Sprint stock, making Charter the natural partner, a move that could see Softbank Group Corp (OTCMKTS:SFTBF) founder Masayoshi Son become the largest shareholder in a combined entity.

Currently, Softbank owns owns 83% of Sprint, while over at Charter, John Malone’s Liberty Broadband Corp (NASDAQ:LBRDK) owns 25.6%.

Sprint has a market value of $36.6 billion, while Charter’s enterprise value is $99.1 billion; put the two together and Son’s share of the merged company works out to 30.4%, compared to 25.4% for Liberty Broadband, despite Charter being the larger company.

There’s only one problem with this calculation: It doesn’t provide a premium for either company, and that’s where negotiations could get very tricky.

John Malone knows a thing or two about dealmaking so he’s likely to drive a hard bargain when it comes to whom owns whom. Meanwhile, Son could argue that Comcast Corporation (NASDAQ:CMCSA) is just as hungry for a wireless business — it has set up a mobile division and is bidding on spectrum — and could make a better fit, given its existing partnership with Sprint.

At the end of the day, both Sprint and Charter need each other more than Comcast needs either of them, so unless something happens that prevents T-Mobile and DISH from coming together, Charter is the best bet for Sprint stock at this moment.

However, that could change very quickly once the shoes start to drop.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

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Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2017/02/sprint-corp-s-stock-best-bet-charter-communications-inc-chtr/.

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