Sprint and T-Mobile nearing merger agreement

T-Mobile and Sprint, respectively the third and fourth largest wireless carriers in the U.S., are nearing a merger agreement, undisclosed sources told Reuters Friday. A due diligence period would follow the finalization of the agreement’s terms, but the companies expect a deal by October, according to Reuters’ source.

In August, Reuters says, Sprint CEO Marcelo Claure said an announcement regarding merger talks would come in “the near future.”

The merger proposal would be the first one “with significant antitrust risk” to be submitted to the Federal Trade Commission since President Donald Trump took office, Reuters notes. The President was elected on a platform that included the deregulation of the business environment.

Mayoshi Son, the founder of Japanese venture capital firm SoftBank, which controls the Sprint Corporation, met with Trump in late December, just after the former tycoon won the election.

Son found Trump’s business policy potentially favorable for SoftBank, and promised to invest $50 billion in the U.S. economy and to create 50,000 jobs.

A merger proposal would evince Son’s confidence that the regulatory environment has become laxer since Sprint and T-Mobile abandoned a merger proposal in 2014 amidst pressure from the FTC.

Indeed, the FTC might be more receptive to a transformative merger in the telecom industry now than it was three years ago. Earlier this year, Reuters says, FTC Chairman Ajit Pai said “effective competition [exists] in the marketplace for mobile wireless services.” Thursday, the agency will vote on whether to submit Pai’s report on the state of competition in the wireless services market to the U.S. Congress, which requires such a report annually.

But, the terms of the new merger will likely be less advantageous for Son and Sprint than those reached in 2014. Under the previous deal, Sprint would have controlled the combined company, while T-Mobile’s parent company, Deutsche Telecom, would have become a minority shareholder.

Over the past three years, though, T-Mobile has outperformed Sprint. Accordingly, the terms of the new agreement will likely flip, Reuters’ source said. Deutsche Telecom and T-Mobile stockholders would own a majority of the combined enterprise, while SoftBank and the rest of Sprint’s shareholders would have a minority stake.

T-Mobile CEO John Legere, who took the reins in 2012 and has guided the company’s surge, will likely run the combined company.

The merged enterprise would have 130 million subscribers, Reuters notes, making it the United States’ third-largest wireless carrier, behind AT&T, which had 136.5 million subscribers as of July, and Verizon, which reported 147.2 million subscribers that same month.

Sprint’s market cap of approximately $34 billion, combined with T-Mobile’s $53 billion figure, would give the new company a value of around $87 billion. AT&T’s market cap is about $237 billion; Verizon’s exceeds $205 billion.

Sprint reported annual revenue of $33.3 billion for fiscal 2016, which ended March 31. T-Mobile posted $37.2 billion in annual revenue for calendar 2016. So, the combined company would likely generate over $70 billion annually.

Verizon posted consolidated revenues of $126 billion and wireless revenues of $89.2 billion in 2016. AT&T’s figure came in at $163 billion.

Analysts say the Sprint/T-Mobile merger provides ample opportunity to cut expenses as well.

In their bid for regulatory approval, the companies will likely emphasize that the combined company would create jobs by making investments in the development of 5G, the next generation of mobile internet connectivity.

But the merger will also precipitate layoffs as the new company consolidates its corporate structure, Roger Entner of Recon Analytics told Reuters.

According to Reuters, Sprint briefly pursued a merger with Charter Communications earlier this year.

The FTC continues to review another potential consolidation in the industry: AT&T’s proposed $85.4-billion acquisition of Time Warner.

Sprint shares jumped six percent Friday; T-Mobile stock rose 1.06 percent.

SoftBank Looks to Make Inroads Into US Ride-Hailing Sector

SoftBank CEO Masayoshi Son has indicated intentions to make inroads into the US ride-hailing market with a multi-billion dollar investment in Uber or Lyft, CNN’s Sherisse Pham reports.

At a news conference Monday, Son said his company was “definitely interested” in pursuing a partnership with one of the two ride-hailing operations. Son expects a boom in the ride-hailing industry to accompany the rise of self-driving cars.

“…when that stage comes [i.e. when autonomous cars sponsored by ride-hailing companies hit the streets],” said Son, “this ride share business becomes even more important.”

SoftBank already holds sizable stakes in a host of Asian ride-hailing companies, including China’s Didi Chuxing, India’s Ola, Brazil’s 99, and Singapore’s Grab. According to The Wall Street Journal, Son’s interest in Uber may indicate that he believes the US startup will combine its operations with Ola and Grab

Uber has set a precedent of willingness to partner with local companies in international markets. After a heated competition between Uber and Didi Chuxing ended in a stalemate, Uber agreed to sell its Chinese business to Didi in exchange for a 20% stake in the Chinese company. In July, Uber announced plans to strike a similar deal with Russia’s YandexTaxi.

On July 25, the Wall Street Journal reported that SoftBank was considering investment in Uber, but said negotiations between the two companies were “preliminary and one-sided.” A deal would likely be postponed until Uber appointed a new CEO in the wake of former chief Travis Kalanick’s resignation over sexual harassment allegations in June. The scandal also left the company without a chief operating officer, a general counsel, and an independent board chair, according to Bloomberg. On August 4, The Washington Post reported that Uber’s shortlist for the CEO position had been cut to three people.

The management vacancies, coupled with the increasing success of Lyft, are prompting many early Uber investors to jump ship. Sources told Bloomberg two such investors are negotiating to sell their stakes to larger investment firms.

With a market cap of $89.7 billion, SoftBank is among Japan’s most valuable companies. Its subsidiaries include Sprint, Yahoo! Japan, Myspace Japan, and myriad others.

In May, SoftBank, along with Saudi Arabia, Apple, and others, formed a $100 billion dollar tech fund, called the Vision Fund, that “will focus on investments of more than $100 million in technology businesses of the future,” according to a CNN report. It is unclear whether SoftBank’s investment in Uber or Lyft will be pulled from that fund.

Last Thursday, SoftBank contributed $250 million to Kabbage, a financial technology company based in Atlanta, GA. Kabbage, a next generation lending company, uses an online system to quickly evaluate a small business’s eligibility for a capital loan. According to the company’s website, the evaluation process analyzes business performance as well as credit score, and a customer can gain approval for a loan in less than 10 minutes. The website also says Kabbage has lent more than $3.5 billion dollars worth of funding to more than 100,000 businesses.

Kabbage licenses out its technology to traditional banks who wish to offer automated lending; the program is currently used by banks like Banco Santander SA (SAN.MC), ING Groep NV, and Scotiabank. SoftBank is the first Asian player outside of China to enter the automated lending space.

Son’s press conference on Monday coincided with the release of SoftBank’s quarterly earnings report, in which the company reported $4.33 billion worth of profit—a 50% year-over-year increase. The jump came after SoftBank included the Vision Fund as a reportable segment for the first time.

Profits were further boosted by the success of Sprint, in which SoftBank owns an 80% stake. The cellular service provider reported its first profit in more than three years Monday. SoftBank is considering a potential merger between Sprint and T-Mobile, or between Sprint and Charter Communications Incorporated.

SoftBank’s shares have risen just over 1% since Monday.

Featured Image via Flickr/Nobuyuki Hayashi

Asian Ride-Hailing Company Grab Has Raised 2 Billion and Counting in Latest Investment Round

China’s most prominent ride sharing company, Didi Chuxing, and SoftBank, a leader in the Japanese telecommunications and internet services industries, have invested a combined $2 billion in southeast Asian ride-hailing company Grab, Johana Bhuyan of recode.net reports. Grab expects to collect an additional $500 million dollars during this round of funding. It will use the money to expand geographically, as well as to bolster GrabPay, its mobile pay service.

Grab, founded in Singapore in 2012 as “MyTeksi,” now operates in 65 cities across 7 countries in Southeast Asia. The company serves three million daily users, Bhuyan says, and claims to hold 95% of the taxi market and 71% of the ride hailing market in the region.

Didi initially invested in Grab in 2015, during the latter company’s $350 million Series E round. SoftBank led Grab’s $250 million series D round in 2014.

Didi owns Uber’s China operation, and holds stake in Lyft, as well as in India’s largest ride-hailing company, Ola, and Brazil’s leading ride-hailing company, 99. SoftBank invested $100 million in 99 back in May, and a $210 million in Ola in 2015.

Rather than compete with one another across foreign markets, many ride-hailing companies are  choosing to cooperate, sharing their driver networks with each other. As a result of the Lyft-Didi alliance, for instance, a Lyft user traveling in China will find Didi cars listed when he opens his Lyft app, and vise versa. When it closed a $5.5 billion funding round in April, Didi said it planned to use the money to create a “sustainable global mobility ecosystem.” The investment in Grab marks another step toward doing just that.

Uber took a different approach toward establishing itself in international markets: it went head to head with established local companies like Didi in China. Its attempt to break into the Chinese market cost Uber about $2 billion, Kara Swisher of recode wrote last August. In the end, the companies called a truce: Didi gained control of Uber’s Chinese assets, adding $7 billion to its valuation, but Uber was granted a 20% stake the expanded Didi company, which] invested $1 billion in Uber.

SoftBank is also making inroads into self-driving technology. Just last week, it co-led a $159 million investment round in Nauto, which develops technology in driverless cars.

According to Arjun Kharpal of CNBC, Nauto plans to “use the money to grow and develop its camera technology and install it into more cars globally.”

Self-driving technology may be intertwined with the ride-hailing industry for the foreseeable future. Last week, Lyft announced intentions to add driverless cars to its network by the end of this year. Last September, Grab partnered with NuTonomy, a Cambridge based MIT spinoff that specializes in autonomous car technology, to allow users to try driverless cars for free. Uber’s Advanced Technologies Center in Pittsburgh, founded in 2015, employs some of the industry’s top minds in the effort toward self-driving technology. Lyft will create a similar operation, it said in the aforementioned announcement.

Cooperation is doing much to spur the ride-hailing as well as the autonomous car industry. GM and BMW also participated in Nutonomy’s investment round last week, and such automakers will likely team with ride hailing companies, which can provide platforms for the honing of autonomous technology.

The expansive alliance network that includes Didi, Left, Grab, and others is making it easier for customers to find rides around the world. Of course, the easier that becomes, the more ride hailing will pull ahead in the transportation space.

But Uber, having lost billions in a more or less futile attempt to infiltrate the Chinese market, may be left behind, unless that company can outstrip competitors in the race toward autonomous technology.

Featured image via Flickr/Jon Russell

Alibaba going public – makes Son 58 Billion!

Alibaba – a Chinese internet business web portal and an internet shopping mall that connects Chinese manufacturers with overseas buyers recently filed its US IPO documents with the SEC. Alibaba has an expected valuation of about $160 Billion and Masayoshi Son and his company SoftBank Corp, 14 years ago invested $20 million in then a startup, owns a 34.4% share now will have an estimated value of about $57.8 Billion to add to his already growing portfolio which includes ownership stakes in Sprint, T-Mobile, Yahoo Japan, and Zynga games among the other 1,300 businesses in his portfolio.

The Alibaba windfall is a bit of vindication for what Son has called his Netbatsu strategy, a digital age variation on the old Japanese zaibatsu, or industrial conglomerate. “The guy is the Warren Buffett of Asia,” “In venture capital, the way we measure success is how much was put in initially and what’s the return. Every now and then you have something worth 500 times, like a Twitter or an Alibaba” said Greg Tarr, managing partner at seed fund CrossPacific Capital in Palo Alto, California.

Son is currently the number 2 richest person in Japan with a net worth of $15.8 Billion according to data compiled by Bloomberg, and his expansion efforts both in the corporate sector and net worth fields are still growing. He aims for his company SoftBank to become the number one company, and to do that he will have to have more Alibaba type returns on investments in his portfolio, but this one right now sure helps his cause.

 

 

PHOTO: JD Lasica/Flickr