| • | the interests of Sprint’s executive officers and directors with respect to the merger transactions that are in addition to, or that may be different from, their interests as Sprint stockholders; |
| • | the risk that while the merger transactions are expected to be completed, there can be no assurance that all conditions to the parties’ obligations to complete the merger transactions will be satisfied, and as a result, it is possible that the merger transactions may not be completed even if approved by Sprint’s stockholders; |
| • | the risks and costs to Sprint if the merger transactions are not completed, including the diversion of management and employee attention, potential negative effects on Sprint’s relationships with suppliers, vendors and other business partners, impact on trading prices for Sprint shares and direct costs incurred; |
| • | the fact that there can be no assurances that the potential synergies considered by the Sprint board of directors will in fact be achieved by the combined company; |
| • | the potential challenges in integrating two business enterprises of the size and scope of Sprint and T-Mobile, including the possibility that the benefits of the merger transactions might not be achieved in the time frame contemplated or at all; and |
| • | the other risks described in the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.” |
The Sprint board of directors concluded that the uncertainties, risks and potential negative factors relevant to the merger transactions were outweighed by the potential benefits that it expected Sprint stockholders would achieve as a result of the merger transactions.
In considering the recommendation of the Sprint board of directors, Sprint stockholders should be aware that directors and executive officers of Sprint have interests in the merger transactions that are different from, or in addition to, any interests they might have solely as stockholders. See “—Interests of the Sprint Directors and Executive Officers in the Merger Transactions.”
This discussion of the information and factors considered by the Sprint board of directors (including the Sprint independent committee) includes the principal positive and negative factors considered by the Sprint board of directors, but is not intended to be exhaustive and may not include all of the factors considered. In view of the wide variety of factors considered in connection with its evaluation of the merger transactions and the complexity of these matters, the Sprint board of directors did not find it useful to and did not attempt to quantify, rank or otherwise assign relative weights to these factors. Rather, the Sprint board of directors viewed its position and recommendation as being based on the totality of the information presented to it and the factors it considered. In addition, individual members of the Sprint board of directors may have given differing weights to different factors. It should be noted that this explanation of the reasoning of Sprint’s board of directors and certain information presented in this section is forward-looking in nature and, therefore, that information should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements.”
Opinions of Sprint’s Financial Advisors
At the meeting of the Sprint board of directors on April 29, 2018, Raine rendered its oral opinion to the Sprint board of directors to the effect that, as of such date, based upon and subject to the assumptions, limitations, qualifications, conditions and other matters set forth in its opinion, the exchange ratio pursuant to the business combination agreement was fair, from a financial point of view, to the holders of Sprint common stock as of immediately prior to the HoldCo mergers. Raine has confirmed its oral opinion by delivering its written opinion to the Sprint board of directors, dated April 29, 2018, to the effect that, as of such date, the exchange
ratio pursuant to the business combination agreement was fair, from a financial point of view, to the holders of Sprint common stock as of immediately prior to the HoldCo mergers, taking into account the merger.
The full text of the written opinion of Raine, dated April 29, 2018, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex K to this joint consent solicitation statement/prospectus. Raine’s opinion is directed only to the fairness from a financial point of view, of the exchange ratio to the holders of the Sprint common stock as of immediately prior to the HoldCo mergers, taking into account the merger, and does not address any other terms or aspects of the merger transactions including, without limitation, the HoldCo mergers or the form or structure of the merger transactions or any terms or aspects of any voting, support, stockholder or other agreements, arrangements or understandings contemplated or entered into in connection with the merger, the HoldCo mergers or otherwise. The opinion does not address the underlying business decision of the Sprint board of directors or any other person to proceed with the merger or any other action. The opinion does not constitute a recommendation to the Sprint board of directors, Sprint or to any stockholder of Sprint or T-Mobile or to any other person as to how to vote or act with respect to the merger, the HoldCo mergers or any other matter. Holders of Sprint common stock are encouraged to read Raine’s opinion carefully in its entirety.
In arriving at its opinion, Raine:
| • | reviewed the draft dated April 29, 2018 of the business combination agreement; |
| • | reviewed certain publicly available financial and other information relating to Sprint and T-Mobile, including publicly filed reports for each of Sprint and T-Mobile, publicly available research analyst reports regarding each of Sprint and T-Mobile, and reported price and trading activity for the Sprint common stock and the T-Mobile common stock; |
| • | reviewed certain additional financial and other information regarding the business, operations and future prospects of Sprint, which was furnished to Raine by Sprint, including the Sprint management Sprint forecasts and certain other financial projections prepared by the management of Sprint which we refer to as the adjusted Sprint management Sprint forecasts and which are summarized under “The Merger Transactions—Sprint Unaudited Prospective Financial Information”; |
| • | reviewed and discussed certain additional financial and other information regarding the business, operations and future prospects of T-Mobile, which was furnished to Raine by T-Mobile, including the T-Mobile management T-Mobile forecasts prepared by the management of T-Mobile; |
| • | reviewed and discussed certain additional financial and other information regarding the estimated synergies that may result from the merger, as projected by T-Mobile’s management based in part on inputs from and discussions with Sprint management; |
| • | conducted discussions with management of Sprint regarding (1) the business, operations and future prospects of Sprint, including their views regarding the Sprint management Sprint forecasts and the adjusted Sprint management Sprint forecasts, (2) the business, operations and future prospects of T-Mobile, including their views regarding the T-Mobile management T-Mobile forecasts, (3) the strategic rationale for, and the potential benefits of, the merger, and (4) the business, operations and future prospects of a combined entity, including management’s views regarding the estimated synergies; |
| • | reviewed and discussed certain financial information of a pro forma combined entity, including associated synergies that may result from the merger, pursuant to the combined company forecasts prepared by T-Mobile’s management based in part on inputs from and discussions with Sprint management; |
| • | reviewed and analyzed certain publicly available financial data relating to selected public companies that Raine deemed relevant to its analysis; |
| • | reviewed the financial terms, to the extent publicly available, of certain other business combinations; and |
| • | conducted such other financial studies, analyses and investigations, and considered such other factors, as Raine deemed appropriate for purposes of its opinion. |
In rendering its opinion, Raine relied upon and assumed, without independent verification, the accuracy and completeness of all the financial and other information that was available to Raine from public sources, that was provided to Raine by Sprint or T-Mobile or any of their respective representatives, or that was otherwise reviewed by Raine, and was advised by management of Sprint that it was not aware of any information that might be material to Raine’s opinion that had not been made available to Raine. With respect to the Sprint management Sprint forecasts and the adjusted Sprint management Sprint forecasts, Raine was advised by management of Sprint that they were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Sprint as to the future operating and financial performance of Sprint. With respect to the T-Mobile management T-Mobile forecasts, Raine assumed, at the direction of Sprint’s management, that the T-Mobile management T-Mobile forecasts were reasonably prepared on a basis reflecting, at the time, the best currently available estimates and judgments of the management of T-Mobile as to the future operating and financial performance of T-Mobile. With respect to both the estimated synergies and the combined company forecasts, Raine was advised by Sprint’s management that they were reasonably prepared on a basis reflecting, at the time, the best currently available estimates and judgments of the management of Sprint and assumed, at the direction of Sprint’s management, that they were reasonably prepared on a basis reflecting, at the time, the best currently available estimates and judgments of the management of T-Mobile as to the future operating and financial performance of the potential combined entity. Raine further assumed, at the direction of Sprint’s management and with the consent of the Sprint board of directors, that the financial results in each of the Sprint management Sprint forecasts, adjusted Sprint management Sprint forecasts, T-Mobile management T-Mobile forecasts, estimated synergies and combined company forecasts and other financial and operating data utilized in the Raine analyses will be realized at the times and in the amounts projected. Raine assumed no responsibility for and expresses no view as to any such projections or forecasts, or as to the assumptions on which they are based.
Raine has not assumed any responsibility for making an independent evaluation or appraisal of any assets or liabilities of Sprint or T-Mobile, contingent or otherwise, and has not been provided with any such evaluation or appraisal, nor has Raine evaluated the solvency, viability or fair value of Sprint or T-Mobile or any other person or any assets, under any state or federal laws relating to bankruptcy, insolvency or similar matters. Without limiting the generality of the foregoing, Raine did not undertake any independent analysis of any outstanding, pending or threatened litigation, regulatory action, possible unasserted claims or other contingent liabilities to which Sprint or T-Mobile or any of their respective affiliates is a party or may be subject, and, at the direction of Sprint, the Raine opinion did not consider the possible assertion of claims, outcomes or damages arising out of any such matters.
Raine assumed that the merger transactions will be consummated in a timely manner and in accordance with the terms of the business combination agreement, without any limitations, restrictions, conditions, amendments, waivers or modifications, regulatory or otherwise, and without any adjustment to the exchange ratio, that collectively would have an adverse effect on Sprint or T-Mobile, or the benefits contemplated by the merger transactions, in any way material to Raine’s analysis. Raine assumed that the representations and warranties of Sprint and T-Mobile as set forth in the business combination agreement are true and correct in all respects material to Raine’s analysis. Raine assumed that the merger transactions will be consummated in a manner that complies with the applicable provisions of the Securities Act, the Exchange Act, and all other applicable federal and state statutes, rules and regulations. Raine also assumed that the final executed business combination agreement would not differ in any material respect from the draft referred to above.
Raine’s opinion was necessarily based on economic, market, financial and other conditions as they existed on, and on the information made available to Raine as of, the date of its opinion. It should be understood that,
although subsequent circumstances, developments or events may affect its opinion, Raine does not have any obligation to update, revise or reaffirm its opinion.
Raine’s opinion did not address the relative merits of any portion of the merger as compared to any other business strategies or alternative transactions that may have been available to Sprint, nor did it address the underlying business decision of the Sprint board of directors or any other person to proceed with the merger or any other action. Raine did not express any view or opinion with respect to any aspect of the business combination agreement or the merger, other than the fairness to the holders of Sprint common stock immediately prior to the HoldCo mergers of the exchange ratio, taking into account the merger, to the extent expressly specified therein, including that Raine did not express any view or opinion with respect to the HoldCo mergers or any legal, tax, regulatory or accounting matters relating to the merger, as to which Raine understood Sprint obtained such advice as it deemed necessary from qualified professionals.
Raine’s opinion was limited to whether the exchange ratio, taking into account the merger, was fair to the holders of Sprint common stock immediately prior to the HoldCo mergers, solely in their capacity as stockholders, from a financial point of view, and did not address any other terms or aspects of the merger including, without limitation, the HoldCo mergers or the form or structure of the merger or any terms or aspects of any voting, support, stockholder or other agreements, arrangements or understandings contemplated or entered into in connection with the merger, the HoldCo mergers or otherwise. Raine did not express any opinion as to the prices at which shares of T-Mobile common stock will trade at any time or as to the impact of the merger transactions on the solvency or viability of Sprint or T-Mobile or the ability of Sprint or T-Mobile to pay their respective obligations when they come due.
Raine expressed no view or opinion as to the fairness of the amount or nature of the compensation, if any, to be received by any party’s officers, directors or employees, or any class of such persons, as a result of, or in connection with, the merger transactions, relative to amounts to be paid or issued to any party’s stockholders or otherwise, or to the relative ownership of T-Mobile by the holders of T-Mobile common stock following the merger transactions. Its opinion does not constitute a recommendation to the Sprint board of directors, the holders of Sprint common stock, the holders of T-Mobile common stock or to any other person as to how to vote or act with respect to the merger transactions or any other matter. The issuance of Raine’s opinion was approved by the fairness opinion and valuation review committee of Raine.
The following is a summary of the material financial analyses performed by Raine and reviewed by the Sprint board of directors in connection with Raine’s opinion relating to the merger. The order of the analyses described does not represent relative importance or weight given to those analyses by Raine. The financial analyses summarized below include information presented in tabular format. In order to fully understand Raine’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Raine’s financial analyses. Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by Raine are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses.
Standalone Valuation of Sprint
Enterprise values, which Raine defined as equity value plus total debt, less cash and cash equivalents, plus the book value of minority interests, derived from the selected comparable companies analysis described below were calculated as of April 29, 2018. Accordingly, the information may not reflect current or future market conditions. Estimates of earnings before interest, taxes, depreciation and amortization (which we refer to in this section entitled “—Opinion of Raine” as “EBITDA”) for the selected comparable companies were based on public filings, Capital IQ and publicly available research analyst estimates as of April 29, 2018.
Unless otherwise indicated, Raine calculated the per share values for Sprint common stock on a fully diluted basis using the treasury stock method. Raine also calculated enterprise value for Sprint adjusted to include the value of certain non-operating assets including the estimated net present value of certain net operating losses (which we refer to in this section entitled “—Opinion of Raine” as the “NOLs”) that are expected to be utilized to offset future taxable income in accordance with an NOL utilization schedule prepared by the management of Sprint, which net present value was approximately $1.9 billion under the Sprint management Sprint forecasts and $1.8 billion under the adjusted Sprint management Sprint forecasts (discounted based on a 9.5% cost of equity rate based on Raine’s analysis of the cost of equity for Sprint and Raine’s professional judgment and experience).
Discounted Cash Flow Analysis
Raine performed a discounted cash flow analysis of Sprint’s projected unlevered free cash flows based on the Sprint management Sprint forecasts and the adjusted Sprint management Sprint forecasts for the calendar years 2018 through 2022. Raine calculated the discounted cash flow value per share of Sprint common stock using Sprint discount rates ranging from 7.00% to 8.00%, reflecting estimates of Sprint’s weighted average cost of capital in both scenarios. Raine calculated implied prices per share of Sprint common stock using terminal values based on assumed perpetuity growth rates ranging from 0.0% to 1.00% (which range was selected based on guidance from Sprint management and Raine’s professional judgment and experience), which terminal values implied multiples of terminal 2022E EBITDA less stock-based compensation (which we refer to in this section entitled “—Opinion of Raine” as “adjusted EBITDA”) less handset depreciation of 5.8x to 7.8x for the Sprint management Sprint forecasts and 5.2x to 6.9x for the adjusted Sprint management Sprint forecasts. These terminal values were then discounted to net present value using the discount rates noted above. This analysis resulted in a range of present values of $6.52 to $10.96 per share of Sprint common stock for the Sprint management Sprint forecasts and a range of present values of $2.45 to $5.75 per share of Sprint common stock for the adjusted Sprint management Sprint forecasts.
Selected Comparable Companies Analysis
Raine reviewed and compared certain financial information of Sprint with corresponding financial information of selected publicly traded telecommunications companies that Raine judged to be relevant in performing a selected comparable companies analysis. Although none of the selected companies is entirely comparable to Sprint, these companies were selected, among other reasons, because of their operational and overall business similarities with certain portions of Sprint’s business. The companies reviewed in connection with these analyses were as follows:
| • | AT&T Inc. |
| • | Verizon Communications Inc. |
| • | United States Cellular Corp. |
Raine reviewed, among other things, enterprise values as multiples of estimated adjusted EBITDA less handset depreciation, for calendar year 2018 and calendar year 2019. Raine then compared the multiples derived for the selected companies with corresponding adjusted EBITDA less handset depreciation multiples implied for Sprint based on (1) the Sprint management Sprint forecasts and (2) the adjusted Sprint management Sprint forecasts, as reflected below:
| Enterprise Value/Adjusted EBITDA less Handset Depreciation |
||||||||
| CY2018 | CY2019 | |||||||
| AT&T Inc. |
6.2x | 6.2x | ||||||
| Verizon Communications Inc. |
7.2x | 7.0x | ||||||
| United States Cellular Corp. |
6.4x | 6.1x | ||||||
| Mean |
6.6x | 6.4x | ||||||
| Median |
6.4x | 6.2x | ||||||
| Sprint, Wall Street Consensus Estimates |
7.1x | 6.9x | ||||||
| Sprint Management Sprint Forecasts |
7.2x | 6.0x | ||||||
| Adjusted Sprint Management Sprint Forecasts |
7.2x | 6.4x | ||||||
| T-Mobile, Wall Street Consensus Estimates |
7.5x | 6.8x | ||||||
| T-Mobile Management T-Mobile Forecasts |
7.8x | 7.3x | ||||||
Based upon its review of the comparable companies, and using adjustments determined based upon differences between the comparable companies and Sprint, Raine determined an appropriate range of estimated adjusted EBITDA less handset depreciation multiples of 6.5x to 7.5x for calendar year 2018 as of March 31, 2018 and a range of estimated adjusted EBITDA less handset depreciation multiples of 6.0x to 7.0x for calendar year 2019. Raine then applied these selected ranges to determine an approximate implied price per share range for Sprint common stock of $3.99 to $5.73 for the Sprint management Sprint forecasts and an approximate implied price per share range for Sprint common stock of $3.96 to $5.69 for the adjusted Sprint management Sprint forecasts for calendar year 2018. For calendar year 2019, this analysis indicated an approximate implied price per share range for Sprint common stock of $5.28 to $7.35 for the Sprint management Sprint forecasts and an approximate implied price per share range for Sprint common stock of $4.37 to $6.31 for the adjusted Sprint management Sprint forecasts.
Precedent Transactions Analysis
Raine reviewed and compared certain financial information relating to the merger with corresponding financial information of seven selected other transactions announced between June 2008 and September 2013 that Raine, based on its experience with merger and acquisition transactions, deemed relevant. Although none of the transactions in the selected transaction analysis is directly comparable to the merger transactions, Raine chose such transactions based on, among other things, the similarity of the applicable target companies in the transactions to Sprint with respect to industry and other characteristics of their business. The reasons for and the circumstances surrounding each of the selected transactions analyzed were diverse and there are inherent differences in the business, operations, financial conditions and prospects of Sprint, T-Mobile and the companies included in the selected transaction analysis. Accordingly, Raine took into account multiple factors, including its industry and transactional experience, in undertaking its analysis. This analysis involves complex considerations and qualitative judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading, acquisition or other values of the selected target companies, Sprint and T-Mobile. The seven transactions reviewed in connection with this analysis were as follows:
| Announcement Date |
Target |
Acquirer | ||
| September 2, 2013 | Verizon Wireless | Verizon Communications Inc. |
| Announcement Date |
Target |
Acquirer | ||
| July 12, 2013 | Leap Wireless International, Inc. | AT&T Inc. | ||
| October 15, 2012 | Sprint Nextel Corporation | SoftBank Corp. | ||
| October 3, 2012 | MetroPCS Communications, Inc. | T-Mobile USA, Inc. | ||
| March 20, 2011* | T-Mobile USA, Inc. | AT&T Inc. | ||
| November 7, 2008 | Centennial Communications Corp. | AT&T Inc. | ||
| June 5, 2008 | Alltel Corporation | Verizon Wireless |
| * | Transaction not ultimately consummated. |
For each of the selected transactions, Raine calculated and compared the implied enterprise value of the target company, based on the announced purchase price for the transaction, as a multiple of adjusted EBITDA of the target for the last 12 months (which we refer to in this section entitled “—Opinion of Raine” as “LTM adjusted EBITDA”) period ended prior to the announcement of the transaction. The following table presents this analysis:
| Enterprise Value/ LTM Adjusted EBITDA |
||||
| Low |
5.5x | |||
| Mean |
7.5x | |||
| Median |
7.2x | |||
| High |
9.4x | |||
Based on its analysis of the relevant metrics for each of the selected transactions and upon the application of its professional judgment and experience, Raine selected an implied reference range for shares of Sprint common stock, based on the LTM adjusted EBITDA less handset depreciation multiples of 7.0x to 9.0x, of $5.04 per share to $8.52 per share (including an estimated $1.9 billion in net present value of the NOLs).
Standalone Valuation of T-Mobile
Enterprise values derived from the selected comparable companies analysis described below were calculated as of April 29, 2018. Accordingly, the information may not reflect current or future market conditions. Estimates of adjusted EBITDA less handset depreciation for the selected comparable companies were based on public filings, Capital IQ and publicly available research analyst estimates as of April 29, 2018.
Unless otherwise indicated, Raine calculated the per share values for T-Mobile common stock on a fully diluted basis using the treasury stock method. Raine also calculated enterprise value for T-Mobile adjusted to include the value of certain non-operating assets including the estimated net present value of the NOLs, which was approximately $1.0 billion under the T-Mobile management T-Mobile forecasts (discounted based on a 9.0% cost of equity rate based on Raine’s analysis of the cost of equity for T-Mobile and Raine’s professional judgment and experience).
Selected Comparable Companies Analysis
Raine reviewed and compared certain financial information of T-Mobile with corresponding financial information of selected publicly traded telecommunications companies that Raine judged to be relevant in performing a selected comparable companies analysis. Although none of the selected companies is entirely comparable to T-Mobile, these companies were selected, among other reasons, because of their operational and overall business similarities with certain portions of T-Mobile’s business. The companies reviewed in connection with these analyses were as follows:
| • | AT&T Inc. |
| • | Verizon Communications Inc. |
| • | United States Cellular Corp. |
Raine reviewed, among other things, enterprise values as multiples of estimated adjusted EBITDA less handset depreciation, for calendar year 2018 and calendar year 2019. Raine then compared the multiples derived for the selected companies with corresponding estimated adjusted EBITDA less handset depreciation multiples implied for T-Mobile, as reflected below:
| Enterprise Value/ Adjusted EBITDA less Handset Depreciation |
||||||||
| CY2018 | CY2019 | |||||||
| AT&T Inc. |
6.2x | 6.2x | ||||||
| Verizon Communications Inc. |
7.2x | 7.0x | ||||||
| United States Cellular Corp. |
6.4x | 6.1x | ||||||
| Mean |
6.6x | 6.4x | ||||||
| Median |
6.4x | 6.2x | ||||||
| Sprint, Wall Street Consensus Estimates |
7.1x | 6.9x | ||||||
| Sprint Management Sprint Forecasts |
7.2x | 6.0x | ||||||
| Adjusted Sprint Management Sprint Forecasts |
7.2x | 6.4x | ||||||
| T-Mobile, Wall Street Consensus Estimates |
7.5x | 6.8x | ||||||
| T-Mobile Management T-Mobile Forecasts |
7.8x | 7.3x | ||||||
Based upon its review of the comparable companies, and using adjustments determined based upon differences between the comparable companies and Sprint, Raine determined an appropriate range of estimated adjusted EBITDA less handset depreciation multiples of 6.5x to 7.5x for calendar year 2018 as of March 31, 2018 and a range of estimated adjusted EBITDA less handset depreciation multiples of 6.0x to 7.0x for calendar year 2019. Raine then applied these selected ranges to determine an approximate implied price per share range for T-Mobile common stock of $44.16 to $56.21 for calendar year 2018 and an approximate implied price per share range for T-Mobile common stock of $42.88 to $55.72 for calendar year 2019.
Discounted Cash Flow Analysis
Raine performed a discounted cash flow analysis of T-Mobile’s projected unlevered free cash flows based on the T-Mobile management T-Mobile forecasts for the calendar years 2018 through 2022. Raine calculated the discounted cash flow value per share of T-Mobile common stock using discount rates ranging from 6.50% to 7.50%, reflecting estimates of T-Mobile’s weighted average cost of capital. Raine calculated implied prices per share of T-Mobile common stock using terminal values based on assumed perpetuity growth rates ranging from 0.0% to 1.00% (which range was selected based on guidance from Sprint management and Raine’s professional judgment and experience), which terminal values implied multiples of terminal 2022E adjusted EBITDA less handset depreciation of 5.6x to 7.7x. These terminal values were then discounted to net present value using the discount rates noted above. This analysis resulted in a range of present values of $46.04 to $72.17 per share of T-Mobile common stock.
Combination Analysis
Implied Exchange Ratio Analysis
Raine calculated a discounted cash flow implied exchange ratio range (based on an implied exchange ratio of a number of shares of Sprint common stock for each share of T-Mobile common stock and excluding the
impact of the merger) by dividing the low end of the per share present value range for T-Mobile by the high end of the per share present value range of Sprint indicated in their respective discounted cash flow analyses and by dividing the high end of the per share present value range for T-Mobile by the low end of the per share present value range of Sprint indicated in their respective discounted cash flow analyses. The analysis indicated an implied exchange ratio range of 4.2x to 11.1x for the Sprint management Sprint forecasts and 8.0x to 29.5x for the adjusted Sprint management Sprint forecasts.
Raine also calculated an implied exchange ratio range (based on an implied exchange ratio of a number of shares of Sprint common stock for each share of T-Mobile common stock and excluding the impact of the merger) based on the Selected Comparable Companies Analyses by dividing the low end of the per share present value range for Sprint by the high end of the per share present value range of T-Mobile indicated in their respective Selected Comparable Companies Analyses and by dividing the high end of the per share present value range for Sprint by the low end of the per share present value range of T-Mobile indicated in their respective Selected Comparable Companies Analyses. The analysis indicated an implied exchange ratio range of 7.7x to 14.1x for the Sprint management Sprint forecasts and an implied exchange ratio range of 7.8x to 14.2x for the adjusted Sprint management Sprint forecasts for calendar year 2018. For calendar year 2019, this analysis indicated an implied exchange ratio range of 5.8x to 10.6x for the Sprint management Sprint forecasts and an implied exchange ratio range of 6.8x to 12.8x for the adjusted Sprint management Sprint forecasts.
Raine compared the implied exchange ratios resulting from its analysis to the implied exchange ratio of a number of shares of Sprint common stock for each share of T-Mobile common stock of 9.75x derived from the exchange ratio in the merger.
Illustrative Discounted Cash Flow Analysis
Estimated Synergies
Raine analyzed certain pro forma effects on the present value per share of Sprint common stock expected to result from the merger, including the estimated synergies that may be achieved by the combined company. The analysis was based on the exchange ratio (measured as a ratio of shares of T-Mobile common stock to shares of Sprint common stock in the combined company) and on the estimated synergies provided jointly by Sprint and T-Mobile management.
Raine performed a discounted cash flow analysis of the combined company based on the Sprint management Sprint forecasts, the adjusted Sprint management Sprint forecasts, the T-Mobile management T-Mobile forecasts and the estimated synergies. Raine calculated the discounted cash flow value of Sprint using discount rates under both scenarios ranging from 7.00% to 8.00%, reflecting estimates of Sprint’s weighted average cost of capital, and the discounted cash flow values of T-Mobile and the range of net present values of approximately $53.1 to $76.4 billion of the estimated synergies (net of any costs to achieve the estimated synergies) using discount rates ranging from 6.50% to 7.50%, reflecting estimates of T-Mobile’s and the combined company’s weighted average cost of capital. Raine then calculated implied prices of the per share of the combined company by combining the per share present value of the T-Mobile common stock plus estimated synergies with the per share values of the Sprint common stock pursuant to the standalone discounted cash flow analyses under the Sprint management Sprint forecasts and the adjusted Sprint management Sprint forecasts relative to the exchange ratio (as a ratio of shares of T-Mobile common stock to shares of Sprint common stock in the combined company), on assumed perpetuity growth rates ranging from 0.0% to 1.00% (which range was selected based on guidance from Sprint management and Raine’s professional judgment and experience). This analysis resulted in a range of present values of $9.53 to $14.64 per share of Sprint common stock for the Sprint management Sprint forecasts and a range of present values of $8.20 to $12.91 per share of Sprint common stock for the adjusted Sprint management Sprint forecasts.
Raine then compared the ranges of present values under this illustrative contribution analysis against the present value per share of Sprint common stock calculated on a standalone basis. On an illustrative basis, the
proposed transactions created a range of hypothetical incremental implied values for the holders of Sprint common stock of 33.6% to 46.2% under the Sprint management Sprint forecasts and a range of hypothetical incremental implied values for the holders of Sprint common stock of 124.6% to 234.7% under the adjusted Sprint management Sprint forecasts.
Pro Forma Comparison
Raine performed a discounted cash flow analysis of the combined company’s projected unlevered free cash flows based on the combined company forecasts. Raine calculated the discounted cash flow value per combined company common share using discount rates ranging from 6.50% to 7.50%, reflecting estimates of the combined company’s weighted average cost of capital. Raine calculated implied prices per combined company common share using terminal values based on assumed perpetuity growth rates ranging from 0.0% to 1.00% (which range was selected based on guidance from Sprint management and Raine’s professional judgment and experience), which terminal values implied LTM adjusted EBITDA less handset depreciation multiples of 7.2x to 9.8x. This analysis resulted in a range of present values of $10.15 to $15.29 per combined company common share.
Raine then compared the range of present values under this illustrative pro forma analysis against the present value per share of Sprint common stock calculated on a standalone basis. On an illustrative basis, the proposed transaction created a range of hypothetical incremental implied values for the holders of Sprint common stock of 39.5% to 55.8% under the Sprint management Sprint forecasts and a range of hypothetical incremental implied values for the holders of Sprint common stock of 165.9% to 314.4% under the adjusted Sprint management Sprint forecasts.
Other Information
Historical Trading Prices
Raine reviewed the historical trading prices of Sprint common stock and T-Mobile common stock during the 52-week period ended April 27, 2018, which reflected low to high closing prices for Sprint common stock during such period of $4.81 to $9.22 per share and T-Mobile common stock of $54.60 to $68.88 per share during such trading period. Raine also reviewed the historical implied spot exchange ratio range by for Sprint and T-Mobile over the 52-week period ended April 27, 2018, which reflects an exchange ratio range of 7.1x to 12.5x.
The historical trading prices analysis was presented for reference purposes only, and was not relied upon for valuation purposes.
Raine compared the implied exchange ratios resulting from its analysis to the implied exchange ratio of a number of shares of Sprint common stock for each share of T-Mobile common stock of 9.75x derived from the exchange ratio in the merger.
Analysts’ Price Targets
Raine reviewed publically available equity research analysts’ 12-month share price targets for Sprint common stock and T-Mobile common stock. Raine noted that the price targets issued by those research analysts with publicly available price targets ranged from approximately $3.00 to $7.50 per share of Sprint common stock and $65.00 to $80.00 per share of T-Mobile common stock, excluding one price target for T-Mobile common stock and one price target for Sprint common stock that Raine determined were not comparable for purposes of Raine’s review. Raine then calculated the implied combined company exchange ratio by (1) dividing the low end of the implied equity value per share of the T-Mobile common stock of $65.00 by the high end of the implied equity value per share of the Sprint common stock of $7.50, and (2) dividing the high end of the implied equity value per share of T-Mobile common stock by the low end of the implied equity value per share of Sprint common stock of $3.00. This analysis resulted in an implied exchange ratio of a number of shares of Sprint common stock for each share of T-Mobile common stock of 8.7x to 26.7x.
