The usual unnamed sources have been busy fueling the rumor mill that Sprint Corp (NYSE:S) and T-Mobile US Inc (NASDAQ:TMUS) are close to terms on a merger agreement that would see the third- and fourth-largest wireless carriers combine as one.

If a deal gets done, which is a big question mark at this point, the details are likely to be announced later in October.

These same unnamed sources suggest that T-Mobile’s parent, Deutsche Telekom AG (ADR) (OTCMKTS:DTEGY), would control the merged entity, with Sprint owning between 40 and 50%. Also, T-Mobile CEO John Legere would be CEO with Softbank Group Corp (OTCMKTS:SFTBF) Masayoshi Son, thus having a prominent role in what would become a solid third-place contender in a very competitive telecom marketplace.

With S stock trading around $8 and InvestorPlace’s Tom Taulli recently valuing the shares at $14 in the event of a buyout, it would appear that an arbitrage play is developing.

Typically, one waits until a deal is announced before taking the plunge, betting that the terms of the deal will sweeten. In this case, however, that’s unlikely, because Sprint is running out of dance partners; it needs to bring home a deal.

The bet, if made, would be to buy S stock while it’s still in single digits and hope that the actual value placed on Sprint shares in any combination is higher than $10 and, ideally, closer to Taulli’s estimate in mid-double-digits.

Two Things to Consider

First, investors need to assess the odds of the merger happening. The two parties tried to come together back in 2014 when the Softbank founder looked to acquire T-Mobile but got scared off by antitrust regulators. But it’s not just about agreeing to terms, which won’t be easy when you have someone as powerful as Masayoshi Son, Japan’s wealthiest person, at the negotiating table.

Sprint and T-Mobile, assuming the terms are worked out to everyone’s satisfaction, have to go to Washington and plead their case. That’s not a slam dunk at the best of times.

Secondly, investors must decide if the opportunity cost of making a bet is worth it.

Arbitrage investors play the game, since they can generate reasonable profits over a large number of bets. A bet on Sprint could just as easily go against you, because, if a deal doesn’t get done — as I said earlier — Sprint’s running out of options.

S stock could fall below $8 on the news.

The Odds of Successful Merger

Mad Money’s Jim Cramer thinks the odds of the merger are pretty good, arguing that all kinds of mergers are getting blessed under a Trump administration.

“We’d be blind to ignore the large number of takeovers that are now occurring each week, and, perhaps more important, like the potential Sprint/T-Mobile combination, I think the Trump administration may bless every one of them,” Cramer said on his show September 19.

I believe he’s right, especially when you consider that a combination would provide a much stronger third competitor to Verizon Communications Inc. (NYSE:VZ) and AT&T Inc (NYSE:T).

Also, it’s going to be hard for regulators to block a Sprint/T-Mobile tie-up when it looks all but certain they will rubber stamp AT&T’s purchase of Time Warner Inc (NYSE:TWX).

If the two parties can settle on terms, I don’t see why they can’t take this all the way across the finish line.

Is a Sprint Bet Worth It?

Let’s get right to it by assuming Tom Taulli’s $14 is the price the parties put on S stock in a deal.

That’s a market cap of $56 billion based on 4 billion shares outstanding and an enterprise value of $81 billion based on $31.8 billion in long-term debt and $6.8 billion in cash and short-term investments.

At an enterprise value of $81 billion, Sprint would be an equal partner to T-Mobile, current enterprise value is $82 billion. However, if these unnamed sources are correct, Sprint would own somewhere between 40% and 50% of the merged entity, which means T-Mobile’s shares are worth more than $64 where they were trading Sept. 22.

How much more? Let’s assume Sprint shareholders get 45% of the combined entity. That would suggest a total enterprise value of $180 billion (Sprint’s $81 billion divided by 45%). T-Mobile’s enterprise value would be $99 billion, which translates to a market cap of $72 billion ($99 billion less $27 billion in long-term debt) or $87 a share, 36% above where it’s currently trading.

You thus have 36% potential appreciation for TMUS stock and 75% potential appreciation for Sprint.

Bottom Line on S Stock

First, I do think a merger proposal would get the green light from regulators, so that’s out of the way.

On the second question, I believe the tougher part of a potential tie-up is coming to terms, not the regulators. Therefore, although the upside is potentially greater, the downside is far higher with Sprint than it is with T-Mobile.

For me, I’d buy T-Mobile or even Deutsche Telekom before I’d buy Sprint. If you must make a bet, do the smart thing and buy Softbank’s stock instead. You’ll soften the blow of failed negotiations.

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