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    Mergers and acquisitions

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    T-Mobile - Sprint Merger?
    Rumors about potential mergers are often a hot topic in the business press. One rumor being floated around recently is a potential merger between mobile phone giants T-Mobile and Sprint. Mergers between two large companies are always complicated, but some have noted the possible synergies in 4G technologies that might be possible in such a merger.

    As you know from reading the material in the background materials, mergers can bring about great rewards but also can bring great risks and pitfalls. For this assignment, do some research concerning the arguments both for and against such a merger from a financial perspective. For this module we are not so concerned with how consumers may fair, as this is an issue for the government to consider if they have to approve this merger. Instead you are considering this from the point of view of whether or not such a merger would be a profitable undertaking that would add value to the shareholders of both corporations.

    There are may different articles on this potential merger, but here is one link to get you started:

    http://www.americanbankingnews.com/2010/07/15/sprint-nextel-nyse-s-and-t-mobile-merger-rumors-return-after-comments-from-sprint-ceo/

    Do you think a merger between Sprint and T-Mobile would add value to the shareholders of both corporations?

    The main focus of this assignment will be answering the question above. In your answer to this primary question, consider the following issues:

    1. The impact on T-Mobile shareholders

    2. The impact on Sprint shareholders

    3. The financial condition of both corporations

    4. Why might T-Mobile and Sprint combined as one company be more profitable than they would if they remain independent?

    5. Potential pitfalls - might the combined entity actually be less profitable than either company operating independently?

    1,290 words, 7 references

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    Solution Preview

    Do you think a merger between Sprint and T-Mobile would add value to the shareholders of both corporations?

    The main focus of this assignment will be answering the question above. In your answer to this primary question, consider the following issues:

    1. The impact on T-Mobile shareholders
    The impact on T-Mobile shareholders will be positive. The reason is that T-Mobile is being considered for an acquisition. The T-Mobile shareholders will get more than what their shares are worth. They may get paid in cash or may be paid in shares of Sprint Nextel. if they get paid in the share of Sprint Nextel, they have the choice of selling off these shares on the exchange and getting more cash than what their T-Mobile shares were worth. This is a direct gain to the shareholders of T-Mobile. It is not mandatory for the shareholders of T-Mobile to continue holding the shares of Sprint Nextel after the acquisition has taken place(3).
    2. The impact on Sprint shareholders
    Sprint Nextel shareholders will be negatively impacted by the acquisition. The fact that Sprint Nextel will be paying a large sum of money either in cash or in stock will lead to a decline in the stock price of Sprint Nextel. There are two ways in which Sprint Nextel will pay for the stocks of T-Mobile. It may either pay in cash in which case there will be liquidity issues in the company and may lead to financial difficulties. In this case also the shareholders of Sprint Nextel will suffer. The other method of payment will be though issue of Sprint Nextel stocks in which case also there will be a decline in the stocks of Sprint Nextel (2). Initially, when the deal is finalized, there will be a decline in the value of Sprint Nextel stocks because the price paid for T-Mobile will be higher than the actual net worth of T-Mobile. Dan Hesse will justify the high price paid for T-Mobile takeover because of synergies that Sprint Nextel will gain from the merger. Hesse will mention that both companies will have he advantage of 4G spectrum and will make profits far in excess of what the companies will separately. This is the justification that Hesse will give for the merger but the Sprint Nextel shareholders ...

    Solution Summary

    This explanation provides you a comprehensive argument relating to Mergers and acquisitions

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