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T-Mobile: $4.4 bn Deal for USM Wireless Biz
Hunter Martin, CFA - Head of Media / Cable
Brian McKenna - Associate Analyst, Telecom & Media/Cable
Erick Vega, CFA - Senior Analyst, Telecom Infrastructure
EXECUTIVE SUMMARY
- T-Mobile acquiring all of UScellular’s wireless assets for $4.4 billion. T-Mobile and UScellular announced today that T-Mobile has agreed to acquire substantially all of UScellular’s wireless operations. This includes UScellular ’s wireless customers and stores, as well as certain specified spectrum assets. T-Mobile will pay approximately $4.4 billion for the assets being acquired from UScellular in the transaction in a combination of cash and up to $2.0 billion of debt to be assumed by T-Mobile through an exchange offer to be made to certain UScellular debtholders.
- Negligible impact on T-Mobile’s credit metrics. T-Mobile expects the transaction will yield ~$1.0 billion in effective total opex and capex annual run rate cost synergies upon integration. The total cost to achieve the integration is estimated at $2.2 billion to $2.6 billion. Since integration expenses tend to be front-loaded, we expect the deal will be neutral to slightly dilutive to T-Mobile’s FCF in 2025/2026. We also estimate pro forma EBITDA of ~$1.2 billion, resulting in pro forma net leverage of ~2.6x (versus 2.5x at 1Q24), although the company will have the ability to hold leverage steady at its ~2.5x target level via FCF generation.
- Acquisition will bolster T-Mobile’s strategy to gain rural market share. One of the key pillars of T-Mobile’s growth strategy is to expand its market share in rural areas to ~20% by year-end 2025, with an eventual goal to reach ~33%. While T-Mobile has been extremely successful to date with its rural initiative, growing its market share from ~13% in 2021 to ~17.5% at year-end 2023, we believe the addition of UScellular ’s wireless assets will further enhance its positioning.
- We estimate ~60% likelihood of regulatory approval. Regulatory approval is always a wildcard, particularly under the current administration and with an upcoming presidential election, but our base-case is that the odds skew in favor of approval at ~60/40. However, the ~12 month timeline looks a little optimistic in our view considering the TMUS’s Mint Mobile acquisition took ~13.5 months to close. The regulatory pitch is centered on “more value”, “more choice” and “increased competition”.
RELATIVE VALUE
T-Mobile has been relatively busy on the M&A front, with today’s agreement to acquire UScellular’s wireless operations for ~$4.4 billion following closely on the Lumos Fiber JV (~$1.2 billion investment) and the recently completed Mint Mobile acquisition (~$1.35 billion). While the company is certainly more acquisitive than its peers AT&T and Verizon, we remain unconcerned since T-Mobile’s deals are too small to alter the group’s best-in-class credit metrics.
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