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Things that get the attention of investors include merger talks, especially when confirmed by the CEO, and earnings announcements that include the first quarterly profit in 3 years.

Such was the case with Sprint Corp. (NYSE:SB) Tuesday, causing shares to jump more than 10% in early trading.


Merger Mania

Marcelo Claure, Sprint CEO said on a post-earnings conference call that although Sprint could sustain itself, things were looking positive regarding a merger. Analysts note that the company has cut costs but is highly leveraged. It doesn’t help that the wireless service market is highly saturated.

Sprint is the No. 4 U.S. wireless carrier owned mostly by Japan’s SoftBank Group Corp. and has explored mergers with rival, T-Mobile US Inc. (NYSE:TMUSC) as well as cable company, Charter Communications Inc. (NASDAQ:CHTRC). Claure provided no specifics, saying only that an announcement “should be coming in the near future.”

The SoftBank Connection

Sprint’s parent, SoftBank and its chairman, Masayoshi Son, are thought to want to form a new publicly traded entity consisting of a combination of Sprint and Charter. To accomplish this, SoftBank would have buy the remaining 20% of Sprint shares it does not already own plus buy out Charter shareholders.

This would be a massive deal and potentially reshape, in one fell swoop, cable, wireless and media. When all is said and done, SoftBank would be the controlling factor for this new conglomerate. Sources have told The Wall Street Journal that SoftBank has already lined up financing from 3 banks to fund the deal.

A Deal Not Imminent

Charter has said it isn’t interested in buying Sprint. Of course, that’s not the deal being discussed. It’s the reverse – Sprint, i.e., SoftBank wants to buy out Charter. J.P. Morgan analysts said not to count SoftBank’s Son out. Evercore analyst.

Analysts at J.P. Morgan said despite the failed first attempt, they wouldn’t count Son out. Evercore’s Vijay Jayant, however, said in a note to investors that it’s hard to see this deal coming to pass. Jayant wrote, “We don’t see how such a deal could realistically be structured, given that Charter’s market cap is more than three times Sprint’s, a simple stock-for-stock deal would cut Softbank’s ownership stake in the new company to only around 11% to 12%, leaving SoftBank with relatively minimal influence at the combined company.”


Motivation Matters

While Wall Street and the world watch and wait, it’s worth considering why Sprint would want such a merger in the first place. This merger would be big and would reshape the market. It would mean new service bundles including putting Charter’s cable content on mobile.

Sprint has not been able to be competitive with Verizon Communications Inc. (NYSE:VZC), AT&T Inc. (NYSE:TC) and T-Mobile. In one merger that reality could change making Sprint a force to be contended with. That’s the motivation.

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