Selloff or Market Correction? Either Way, Here's What to Do NextSee Overvalued Stocks

T-Mobile sells wireline business to Cogent for $1, expects hefty charge

Published 09/07/2022, 07:19 AM
Updated 09/07/2022, 12:38 PM
© Reuters. FILE PHOTO: A T-Mobile logo is advertised on a building sign in Los Angeles, California, U.S., May 11, 2017. REUTERS/Mike Blake
MS
-
TMUS
-
HLI
-

By Yuvraj Malik

(Reuters) - T-Mobile US (NASDAQ:TMUS) Inc is doubling down on 5G services after it struck a deal on Wednesday to sell its wireline business to Cogent Communications Holdings Inc for $1, while taking a $1 billion charge on the transaction.

The deal includes a $700 million contract under which Cogent will provide transit services to the carrier for 4-1/2 years after the deal closes.

T-Mobile has been turning its attention away from the wireline business that includes assets from its $26 billion acquisition of Sprint Corp in 2020.

In the most recent earnings call, Chief Executive Michael Sievert said the company was no longer using Sprint infrastructure to support its wireless business and that an asset review was underway.

The wireline business houses communications systems, data processing equipment and fiber optic cable, and earned $739 million in revenue last year.

"We think that T-Mobile must be receiving some sort of discount on the IP transit services that they will be buying from Cogent contractually, and they will save on the costs that they'd otherwise have to keep, maintain and improve (the infrastructure)," said Michael Ashley Schulman, partner and chief investment officer at Running Point Capital Advisors.

For Cogent, the deal provides a U.S. long-haul network that could eventually replace its current leased network and help expand the company's product set to consumers and enterprises.

Cogent expects its revenue base to be about $1.1 billion, or 180% of its current $600 million run rate, CEO Dave Schaeffer said on a conference call.

© Reuters. FILE PHOTO: A T-Mobile logo is advertised on a building sign in Los Angeles, California, U.S., May 11, 2017. REUTERS/Mike Blake

The deal is expected to close in the second half of 2023, and T-Mobile said it would book the pre-tax charge in the third quarter of 2022.

Morgan Stanley (NYSE:MS) served as the financial adviser for Cogent, while Houlihan Lokey (NYSE:HLI) was T-Mobile's financial adviser.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.