By Greg Roumeliotis and Liana B. Baker
(Reuters) - SoftBank Group Corp and Deutsche Telekom AG (DE:DTEGn) have reached an impasse in their talks to merge Sprint Corp and T-Mobile US Inc, sources said, sending shares in the Japanese Internet giant sliding.
At a SoftBank board meeting on Friday, several directors expressed doubts about giving up control of Sprint, people familiar with the matter told Reuters, the latest twist in on-and-off talks to unite the two U.S. wireless carriers that began earlier this summer.
One person briefed on the deal said SoftBank was moving toward breaking off the talks. SoftBank declined to comment.
According to tentative deal terms that Reuters was first to report last month, SoftBank and other Sprint shareholders would have received close to 40 percent or a little more of the combined company.
If talks fall apart, it would be the second time an attempted merger of Sprint and T-Mobile, controlled by Deutsche Telekom, has failed. Together, they would have more than 130 million U.S. subscribers, behind Verizon Communications Inc (NYSE:VZ) and AT&T Inc (NYSE:T).
The two companies came close to announcing a merger in 2014, but called it off at the last minute due to regulatory concerns.
Failure to clinch an agreement could also damage the dealmaking credentials of SoftBank Chief Executive Masayoshi Son, who has raised close to $100 billion for his Vision Fund to invest in technology companies, and uses his image as a reliable counterparty to clinch deals.
SoftBank shares were down 5 percent in Tuesday afternoon trade after rising around 15 percent in the past month, helped by hopes of a deal.
EXPLORING OPTIONS
Industry watchers had long expected Sprint and T-Mobile to attempt another deal, especially after a quiet period associated with a U.S. government auction of wireless airwaves concluded in April, freeing up companies in the telecom industry to discuss mergers and acquisitions.
But no deal was announced immediately following the conclusion of the restriction on merger talks, and both Sprint and T-Mobile said they were open to exploring other options. A source told Reuters in July that SoftBank was considering an acquisition offer for Charter Communications Inc (NASDAQ:CHTR) in a deal where it would combine the cable company with Sprint.
Sprint is in the middle of a turnaround plan and has sought to strengthen its balance sheet by cutting costs. But industry analysts have expressed concern that the company, weighed down with total debt of $38 billion, has few financial options. Even though its customer base has expanded under CEO Marcelo Claure, growth has been driven by heavy discounting.
Sprint's junk bonds were among the hardest hit in Monday afternoon trading, according to IFR, a Thomson Reuters capital markets news service.
Claure said in August that while Sprint could sustain itself, cost savings from a transaction were significantly better than remaining a standalone entity. Analysts have estimated a deal could result in more than $30 billion in savings.
Sprint shares fell as much as 13 percent on Monday after the Nikkei business daily first reported that SoftBank had doubts about a deal, and ended down 9.3 percent. T-Mobile shares ended down 5.4 percent.
The Nikkei also reported that SoftBank would inform Germany's Deutsche Telekom as early as Tuesday that it was proposing to call off the deal talks, but sources who spoke to Reuters could not confirm this.
As of late Monday, T-Mobile still considered the negotiations with Sprint to be active, according to the sources.
Sprint, T-Mobile, Deutsche Telekom also declined to comment.
DUE DILIGENCE ALMOST COMPLETE
The due diligence between T-Mobile and Sprint was almost complete as of last week, and the focus had shifted to working out a business plan for the combined company as well as an integration strategy, sources had told Reuters.
Even so, it was not clear that U.S. regulators would clear a deal between the two carriers.
Analysts have expected consolidation in the U.S. wireless industry to ease pricing pressure in the market, which could benefit AT&T and Verizon, who have lost share to their smaller rivals. Cable companies Comcast Corp (NASDAQ:CMCSA) and Charter Communications are also entering the market with wireless service on Verizon's airwaves.
"With no merger of Sprint and T-Mobile, as well as the entrance of Comcast and Charter into wireless, we expect Verizon to have a difficult run going forward," said Philip Cusick, an analyst at JPMorgan (NYSE:JPM), in a research note. Verizon shares closed down 2.1 percent.
"Sprint as well could struggle to maintain positive subscriber momentum as cable enters, making its balance sheet look unsustainable."
Shares in satellite television provider Dish Network Corp, which has been widely considered a potential partner for T-Mobile or Sprint because of its spectrum holdings, closed up 4 percent.