JP Morgan sees US telecom sector consolidation
The US telecom sector could be on the brink of major consolidation under president Donald Trump's likely more merger-friendly administration, said JP Morgan Securities, which now sees a 90% chance of T-Mobile US being involved in a strategic transaction in the next five years.
T-Mobile could be involved in a tie-up with Sprint, or be acquired by a cable company, JP Morgan said, adding that a transaction involving Dish Network or a sale to a foreign player that wants a foothold in the US wireless market is also likely.
Sprint dropped its bid to acquire smaller rival T-Mobile in August 2014 due to continued regulatory resistance.
A potential combination of Sprint and T-Mobile is seen as the most compelling, with the likelihood of a deal between the two wireless carriers now at more than 35%, up from 10% in September, with a 70% chance of approval, if announced, JP Morgan analyst Philip Cusick said.
Japan's Softbank Group, which owns more than 80% in Sprint, had pledged investment in the US last year, reviving speculation that Sprint and T-Mobile may rekindle merger talks.
JP Morgan upgraded Deutsche Telekom, which owns almost 65% in T-Mobile, to "overweight" from "neutral" and raised its price target to EUR19.50 from EUR16.20 to reflect a 35% probability of a US transaction.
"We believe that parents Softbank and Deutsche Telekom have increased their preference for a tie-up in the last six months and that the value of about $5 billion of annual synergies is enough to smooth over most disagreements on relative value," Cusick said.
Deutsche Telekom chief executive Tim Hoettges said in November that the company was "not in the mood" to sell T-Mobile, although it was watching for any change in the US regulatory environment under Trump's administration.
Cusick estimated a 20% chance of T-Mobile continuing to operate as a standalone business in the next five years.