to the price at which shares of Sprint common stock or T-Mobile common stock would trade at any time. Evercore’s opinion noted that Evercore is not a legal, regulatory, accounting or tax expert and that Evercore assumed the accuracy and completeness of assessments by T-Mobile and its advisors with respect to legal, regulatory, accounting and tax matters.
Summary of Material Financial Analyses
Set forth below is a summary of the material financial analyses performed by Evercore and reviewed with the T-Mobile independent committee in connection with rendering Evercore’s opinion to the T-Mobile independent committee. Each analysis was provided to the T-Mobile independent committee. The following summary, however, does not purport to be a complete description of the analyses performed by Evercore. In connection with arriving at its opinion, Evercore considered all of its analyses as a whole, and the order of the analyses described and the results of these analyses do not represent any relative importance or particular weight given to these analyses by Evercore. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data that existed on April 26, 2018, and is not necessarily indicative of current market conditions.
The following summary of financial analyses includes information presented in tabular format. These tables must be read together with the text of each summary in order to understand fully the financial analyses. The tables alone do not constitute a complete description of the financial analyses. Considering the tables 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 Evercore’s financial analyses.
Selected Precedent Transaction Analysis
Evercore performed an analysis of selected precedent transactions to compare multiples paid in other transactions to the multiple implied in the merger. Evercore analyzed seven merger and acquisition transactions that were announced since 2008 involving targets that were wireless carrier companies with a total enterprise value (which we refer to in this section entitled “—Opinion of Evercore to the T-Mobile Independent Committee” as “TEV”) greater than $1 billion.
While none of the companies that participated in the selected precedent transactions is directly comparable to Sprint and none of the transactions in the selected precedent transactions analysis is directly comparable to the merger transactions, Evercore selected these transactions because each of the target companies was a wireless carrier company and had operating characteristics, products and services that, for purposes of analysis, may be considered similar to certain of Sprint’s operating characteristics, products and services.
For each of the selected transactions, Evercore reviewed transaction values and calculated the TEV implied for each target company based on the consideration paid in the selected transaction, as a multiple of the target company’s earnings before interest, taxes, depreciation and amortization for the first unfinished calendar year with greater than six months remaining following the date of announcement of such transaction (which we refer to in this section entitled “—Opinion of Evercore to the T-Mobile Independent Committee” as “forward EBITDA”).
Evercore’s analysis indicated average and median TEV to forward EBITDA multiples of 7.3x and 7.0x, respectively. The selected precedent transactions and the TEV to forward EBITDA multiple related thereto are set forth in the table below:
|
Date Announced |
Acquirer |
Target |
TEV/Forward EBITDA | |||
| 09/03/13 | Verizon Communications Inc. | Verizon Wireless | 8.4x | |||
| 07/12/13 | AT&T Inc. | Leap Wireless International, Inc. | 8.7x(1) | |||
| 06/10/13 | SoftBank Corp. | Sprint Nextel Corporation | 6.9x(2) | |||
| 10/03/12 | T-Mobile USA, Inc. | MetroPCS Communications, Inc. | 5.0x | |||
| 03/20/11 | AT&T Inc. | T-Mobile USA, Inc. | 7.0x(3) | |||
| 11/07/08 | AT&T Inc. | Centennial Communications Corp. | 6.9x(4) | |||
| 06/05/08 | Verizon Communications Inc. | Alltel Corporation | 8.3x |
| (1) | Assumes contingent value right related to 700MHz spectrum performance is valued at $204 million. |
| (2) | Pro forma for acquisition of Clearwire Corporation. |
| (3) | Withdrawn transaction. |
| (4) | Forward financial estimate per Wall Street consensus. |
Evercore then applied a reference range of forward EBITDA multiples of 7.0x to 9.0x, derived by Evercore based on its review of the selected precedent transactions and its experience and professional judgment, to the estimated core EBITDA of Sprint for the year ending December 31, 2018, to derive a range of implied enterprise values for Sprint. Core EBITDA for T-Mobile and Sprint were provided by the management of T-Mobile. A range of implied equity values was then calculated by reducing the range of implied enterprise values by the amount of net debt (calculated as debt less cash and cash equivalents, which, with respect to Sprint and T-Mobile, we refer to in this section entitled “—Opinion of Evercore to the T-Mobile Independent Committee” as “net debt”) as of March 31, 2018. This analysis indicated an implied per share equity value range for Sprint common stock of $4.93 to $8.50.
Implied Exchange Ratio
Evercore used the resulting per share equity value reference range to calculate the implied exchange ratio by dividing the lowest per share equity value for Sprint common stock by T-Mobile’s share price of $64.10 per share as of April 26, 2018 for the low end of the exchange ratio range, and dividing the highest per share equity value for Sprint common stock by T-Mobile’s share price of $64.10 per share as of April 26, 2018 for the high end of the exchange ratio range. This analysis indicated an implied exchange ratio reference range of 0.07687x to 0.13258x of a share of T-Mobile common stock for each share of Sprint common stock. Evercore compared this resulting implied exchange ratio to the exchange ratio pursuant to the business combination agreement.
Selected Peer Trading Analysis
In performing a selected peer trading analysis of Sprint and T-Mobile, Evercore reviewed and compared certain financial, operating and market information relating to Sprint and T-Mobile to corresponding information of the selected publicly traded companies listed in the tables below, which Evercore deemed most relevant to consider in relation to Sprint and T-Mobile, respectively, based on its professional judgment and experience, because they are public companies with operations that, for purposes of this analysis, Evercore considered similar to the operations of Sprint and T-Mobile, respectively.
Evercore reviewed, among other things, TEV of the selected companies as a multiple of estimated EBITDA, as well as equity value of the selected companies as a multiple of free cash flow for calendar year 2018. Core EBITDA of Sprint and T-Mobile was calculated on a pre-stock based compensation expense basis. TEVs were calculated for the purpose of this analysis as equity value (based on the per share closing price of each selected company on April 26, 2018, multiplied by the fully diluted number of such company’s outstanding equity
securities on such date), plus debt, less cash and cash equivalents (in the case of debt, cash and cash equivalents, as provided by the management of T-Mobile). In calculating the enterprise values of Sprint and T-Mobile, net debt included in such calculations was as of March 31, 2018. Free cash flow was calculated as EBITDA less capital expenditures, interest, cash taxes, changes in net working capital and other operating and investing cash flow items. The financial data of the selected peer companies used by Evercore for this analysis were based on publicly available research analysts’ estimates. The financial data of Sprint and T-Mobile were based on the projections provided by the management of T-Mobile.
The EBITDA multiples and free cash flow multiples for the selected peer companies are set forth in the table below:
| Selected Public Company |
TEV/2018E EBITDA |
Equity Value/ 2018E Free Cash Flow | ||||
| AT&T Inc.(1) |
7.0x | 8.9x | ||||
| Verizon Communications Inc.(2) |
7.2x | 12.7x | ||||
| T-Mobile USA, Inc.—Unaffected (4/9/18)(3) |
7.5x | 14.8x | ||||
| Sprint Nextel Corporation—Unaffected (4/9/18)(3) |
7.5x | NM | ||||
| United States Cellular Corporation |
5.5x | 12.5x | ||||
| (1) | Pro forma for merger with Time Warner Inc. |
| (2) | Pro forma for acquisition of Straight Path Communications Inc. |
| (3) | Estimated balance sheets as of 3/31/18 as provided by the management of T-Mobile. |
Evercore applied a reference range of EBITDA multiples of 7.0x to 8.0x to the estimated core EBITDA of Sprint and T-Mobile, respectively, for the year ending December 31, 2018, to derive a range of implied enterprise values. The reference range was derived by Evercore based on its review of the respective peer companies selected and its experience and professional judgment. In the case of Sprint, estimated core EBITDA was based on the T-Mobile management Sprint forecasts. In the case of T-Mobile, estimated core EBITDA and free cash flow were based on the T-Mobile management T-Mobile forecasts. Using the 2018 EBITDA multiples, this analysis indicated an implied equity value per share reference range for Sprint common stock and T-Mobile common stock of approximately $4.93 to $6.71 and $53.07 to $65.83, respectively. Using the 2018 free cash flow multiple, this analysis indicated an implied equity value per share reference range for T-Mobile common stock of approximately $48.04 to $60.05.
Implied Exchange Ratio
Evercore used the resulting per share equity value reference ranges to calculate the implied exchange ratios by dividing the lowest respective per share equity value for Sprint common stock by the highest respective per share equity value for T-Mobile common stock for the low end of the exchange ratio range, and dividing the highest respective per share equity value for Sprint common stock by the lowest respective per share equity value for T-Mobile common stock for the high end of the exchange ratio range. This analysis indicated an implied exchange ratio reference range of 0.07485x to 0.12651x of a share of T-Mobile common stock for each share of Sprint common stock. Evercore compared this implied exchange ratio to the exchange ratio pursuant to the business combination agreement.
No company utilized in the peer company trading analysis is identical to Sprint or T-Mobile. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning differences in financial, operating and market characteristics of Sprint and T-Mobile and other factors that could affect the public trading value of the companies to which they are being compared. In evaluating the peer companies selected, Evercore made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Sprint and T-Mobile, such as the impact of competition on Sprint or T-Mobile and the industry generally,
industry growth and the absence of any adverse material change in the financial conditions and prospects of Sprint, T-Mobile, the industry or the financial markets in general. Mathematical analysis, such as determining the mean, median or average, is not in itself a meaningful method of using peer company trading data.
Discounted Cash Flow Analyses
Sprint
Evercore performed a discounted cash flow analysis of Sprint to calculate the estimated present value of the standalone unlevered, after-tax free cash flows that Sprint was projected to generate from March 31, 2018 through calendar year 2026, based on the T-Mobile management Sprint forecasts.
Evercore also calculated a terminal value for Sprint by applying a range of perpetuity growth rates, based on available information, and its professional judgment and experience given the nature of Sprint and its business and industry, of 0.0% to 1.0% to the unlevered, after-tax free cash flow in the terminal year. Evercore also calculated estimated future tax savings of approximately $4.8 billion from usage of net operating losses (based on projected assumptions provided by the management of T-Mobile). The cash flows, terminal value and tax savings for Sprint were then discounted to present value as of March 31, 2018 using a range of discount rates of 6.25% to 7.25%, based on an estimate of Sprint’s weighted average cost of capital, to derive an implied enterprise value for Sprint. An implied equity value for Sprint was then calculated by reducing the implied enterprise value by the amount of projected net debt as of March 31, 2018. Evercore performed this analysis for Sprint on a standalone basis. Evercore’s analysis indicated an implied per share equity value reference range for Sprint on a standalone basis of approximately $6.71 to $11.49.
T-Mobile
Evercore performed a discounted cash flow analysis of T-Mobile to calculate the estimated present value of the standalone unlevered, after-tax free cash flows that T-Mobile was projected to generate from March 31, 2018 through calendar year 2026, based on the T-Mobile management T-Mobile forecasts.
Evercore also calculated a terminal value for T-Mobile by applying a range of perpetuity growth rates, based on available information, and its professional judgment and experience given the nature of T-Mobile and its business and industry, of 0.5% to 1.5% to the unlevered, after-tax free cash flow in the terminal year. Evercore also calculated estimated future tax savings of approximately $1.7 billion from usage of net operating losses (based on projected assumptions provided by the management of T-Mobile). The terminal value, cash flows and tax savings were then discounted to present value as of March 31, 2018 using a range of discount rates of 6.0% to 7.0%, based on an estimate of T-Mobile’s weighted average cost of capital, to derive an implied enterprise value for T-Mobile. An implied equity value for T-Mobile was then calculated by reducing the implied enterprise value by the amount of projected net debt as of March 31, 2018. Evercore performed this analysis for T-Mobile on a standalone basis. Evercore’s analysis indicated an implied per share equity value reference range for T-Mobile on a standalone basis of approximately $68.48 to $106.74.
Implied Exchange Ratio
Based on the implied per share equity value reference ranges, Evercore also calculated implied exchange ratios by dividing the lowest per share equity value for Sprint common stock by the midpoint of the implied per share reference range for T-Mobile common stock for the low end of the exchange ratio range, and dividing the highest per share equity value for Sprint common stock by the midpoint of the implied per share reference range for T-Mobile common stock for the high end of the exchange ratio range. This analysis indicated an implied exchange ratio reference range of 0.07973x to 0.13647x of a share of T-Mobile common stock for each share of Sprint common stock. Evercore compared each of these exchange ratios to the exchange ratio pursuant to the business combination agreement.
Net Present Value of Future Stock Price Analyses
Sprint
Evercore performed an illustrative analysis of the net present value of the future stock price of Sprint, which was designed to provide an indication of the present value of a theoretical future value of Sprint as a function of Sprint’s estimated future EBITDA and its assumed TEV to next 12 months (which we refer to in this section entitled “—Opinion of Evercore to the T-Mobile Independent Committee” as “NTM”) EBITDA multiple. Evercore used the projected Sprint forecasts through calendar year 2024 provided by T-Mobile management for this analysis. Evercore first multiplied the estimated 2024 core EBITDA by a range of TEV to NTM EBITDA multiples of 7.0x to 8.0x based on Evercore’s experience and professional judgment, to calculate the implied future enterprise value as of December 31, 2023. Evercore then calculated the implied future equity value for Sprint as of December 31, 2023 by reducing the implied future enterprise value by the amount of Sprint’s projected future net debt as of that date. Evercore then discounted the projected per share equity value as of December 31, 2023 to March 31, 2018 using a discount rate of 9.0%. The discount rate was based on Evercore’s analysis of the cost of equity for Sprint and Evercore’s professional judgment and experience. Future equity value per share as of December 31, 2023 discounted to March 31, 2018 resulted in an implied per share equity value reference range of approximately $6.18 to $7.64.
T-Mobile
Evercore performed an illustrative analysis of the net present value of the future stock price of T-Mobile, which was designed to provide an indication of the present value of a theoretical future value of T-Mobile as a function of T-Mobile’s estimated future EBITDA and its assumed TEV to NTM EBITDA multiple. Evercore used the projected T-Mobile forecasts through calendar year 2024 provided by T-Mobile management for this analysis. Evercore first multiplied the estimated 2024 core EBITDA by a range of TEV to NTM EBITDA multiples of 7.0x to 8.0x based on Evercore’s experience and professional judgment, to calculate the implied future enterprise value as of December 31, 2023. Evercore then calculated the implied future equity value for T-Mobile as of December 31, 2023 by reducing the implied future enterprise value by the amount of T-Mobile’s projected future net debt as of that date and assuming that T-Mobile would complete $1.5 billion in share repurchases in calendar year 2018. Evercore then discounted the projected per share equity value as of December 31, 2023 to March 31, 2018 using a discount rate of 8.5%. The discount rate was based on Evercore’s analysis of the cost of equity for T-Mobile and Evercore’s professional judgment and experience. Future equity value per share as of December 31, 2023 discounted to March 31, 2018 resulted in an implied per share equity value reference range of approximately $67.66 to $78.07.
Implied Exchange Ratio
Based on the implied per share equity value reference ranges, Evercore calculated an implied exchange ratio reference range by dividing the lowest respective per share equity value for Sprint common stock by the midpoint of the respective implied per share reference range for T-Mobile common stock for the low end of the exchange ratio range, and dividing the highest per share equity value for Sprint common stock by the midpoint of the respective implied per share reference range for T-Mobile common stock for the high end of the exchange ratio range. This analysis indicated, on a standalone basis, an implied exchange ratio reference range of 0.08480x to 0.10479x of a share of T-Mobile common stock for each share of Sprint common stock. Evercore compared these exchange ratios to the exchange ratio pursuant to the business combination agreement.
Illustrative DCF “Has-Gets” Analysis
Evercore also reviewed the implied per share equity value of T-Mobile on a standalone and pro forma (for the merger transactions) basis based on a discounted cash flow analysis. In performing this analysis, Evercore assumed a 6.50% discount rate based on T-Mobile’s estimated weighted average cost of capital and 1.0% perpetuity growth rate for T-Mobile and a 6.75% discount rate based on Sprint’s estimated weighted average cost
of capital and 0.5% perpetuity growth rate for Sprint, which were based, in each case, on Evercore’s professional judgment and experience in the wireless carrier industry. The pro forma implied equity value per share was equal to the quotient obtained by dividing (1) 67.0% (T-Mobile stockholders’ pro forma ownership of the combined company based on the exchange ratio) multiplied by an amount equal to the sum of (a) T-Mobile’s standalone discounted cash flow implied equity value using the T-Mobile management T-Mobile forecasts, (b) Sprint’s standalone discounted cash flow implied equity value using the T-Mobile management Sprint forecasts, (c) the net present value of the estimated synergies of approximately $58.8 billion based on the estimated synergies (net of any costs to achieve the estimated synergies) and a 6.625% discount rate (the average of T-Mobile’s and Sprint’s assumed weighted average costs of capital) and 0.0% perpetuity growth rate, and (d) the net present value of the accelerated use of certain net operating losses and avoidance of Sprint restructuring charges as a result of the merger transactions of approximately $2.4 billion based on a 6.625% discount rate (the average of T-Mobile’s and Sprint’s assumed weighted average costs of capital) for the accelerated use of certain net operating losses and a 6.75% discount rate (Sprint’s assumed weighted average cost of capital) for the avoidance of Sprint restructuring charges, by (2) the fully diluted shares outstanding of T-Mobile common stock. Evercore’s discounted cash flow analysis resulted in an implied per share equity value for T-Mobile on a standalone basis of $84.19 per share of T-Mobile common stock. Evercore’s discounted cash flow analysis resulted in an implied per share equity value for T-Mobile on a pro forma (for the merger transactions) basis of $131.16 per share of T-Mobile common stock.
Other Factors
Evercore also reviewed and considered other factors, which were not considered part of its financial analysis in connection with rendering its advice, but were referenced for informational purposes, including, among other things, the 52-week trading range and the analysts’ price targets described below.
52-Week Trading Range
Evercore reviewed historical trading prices of T-Mobile common stock and Sprint common stock during the 52-week period ended April 26, 2018, noting that low and high closing prices during such period ranged from $55.36 to $68.32 for T-Mobile and $4.85 to $9.11 for Sprint. Evercore calculated a daily exchange ratio for the 52-week period ended April 26, 2018 by dividing the daily closing prices of T-Mobile common stock and Sprint common stock, and then selected an implied exchange ratio reference range using the lowest and highest daily exchange ratio observed during such period. This analysis indicated an implied exchange ratio reference range of 0.07933x to 0.13918x. Evercore compared these exchange ratios to the exchange ratio pursuant to the business combination agreement.
Analysts’ Price Targets
Evercore reviewed publicly available share price targets of research analysts’ estimates known to Evercore as of April 26, 2018, noting that the low and high share price targets ranged from $67.00 to $82.00 for T-Mobile common stock (excluding the highest and lowest price targets) and that the low and high share price targets ranged from $4.00 to $7.00 for Sprint common stock (excluding the highest and lowest price targets).
Precedent Premia
Evercore reviewed and analyzed premia paid in all-stock transactions above $5 billion over the past ten years. Based on its professional judgment and premia in the precedent transactions assessed, Evercore applied reference ranges of premia of 15.0% to 20.0% to the price of Sprint common stock as of market close on April 26, 2018. This analysis indicated a per share equity value reference range of approximately $6.90 to $7.20 for Sprint.
Evercore used the resulting per share equity value reference range to calculate the implied exchange ratio by dividing the lowest per share equity value for Sprint by the price of T-Mobile common stock as of market close
on April 26, 2018 for the low end of the exchange ratio range, and dividing the highest per share equity value for Sprint by the price of T-Mobile common stock as of market close on April 26, 2018 for the high end of the exchange ratio range. This analysis indicated an implied exchange ratio reference range of 0.10764x to 0.11232x. Evercore compared this resulting implied exchange ratio to the exchange ratio pursuant to the business combination agreement.
General
The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by Evercore. In connection with the review of the merger transactions, Evercore performed a variety of financial and comparative analyses for purposes of rendering its opinion to the T-Mobile independent committee. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary described above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Evercore’s opinion. In arriving at its fairness determination, Evercore considered the results of all the analyses and did not draw, in isolation, conclusions from or with regard to any one analysis or factor considered by it for purposes of its opinion. Rather, Evercore made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all the analyses. In addition, Evercore may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above should not be taken to be the view of Evercore with respect to the actual value of Sprint common stock or T-Mobile common stock. No company used in the above analyses as a comparison is directly comparable to T-Mobile, no company used in the above analyses as a comparison is directly comparable to Sprint, and no precedent transaction used is directly comparable to the merger transactions. Furthermore, Evercore’s analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, partnerships or transactions used, including judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of T-Mobile, Sprint and their respective advisors.
Evercore prepared these analyses for the use and benefit of the T-Mobile independent committee and for the purpose of providing an opinion to the T-Mobile independent committee as to whether the exchange ratio was fair, from a financial point of view, to holders of shares T-Mobile common stock (including such holders of shares of T-Mobile common stock other than Deutsche Telekom and its affiliates). These analyses do not purport to be appraisals or to necessarily reflect the prices at which the business or securities actually may be sold. Any estimates contained in these analyses are not necessarily indicative of actual future results, which may be significantly more or less favorable than those suggested by such estimates. Accordingly, estimates used in, and the results derived from, Evercore’s analyses are inherently subject to substantial uncertainty, and Evercore assumes no responsibility if future results are materially different from those forecasted in such estimates. The issuance of the opinion was approved by an opinion committee of Evercore.
Except as described above, the T-Mobile independent committee imposed no other instruction or limitation on Evercore with respect to the investigations made or the procedures followed by Evercore in rendering its opinion. The exchange ratio was determined through arm’s-length negotiations between the parties to the business combination agreement, and the T-Mobile independent committee recommended the business combination agreement to the T-Mobile board of directors for approval. Evercore provided advice to the T-Mobile independent committee during these negotiations. Evercore did not, however, recommend any specific consideration to the T-Mobile independent committee or the T-Mobile board of directors or recommend that any specific consideration constituted the only appropriate consideration in the merger transactions. Evercore’s opinion was only one of many factors considered by the T-Mobile independent committee in its evaluation of the merger transactions and its opinion should not be viewed as determinative of the views of the T-Mobile independent committee with respect to the merger transactions or the exchange ratio.
Under the terms of Evercore’s engagement letter with the T-Mobile independent committee, T-Mobile has agreed to pay Evercore a fee of $10 million, $3.5 million of which was payable upon delivery of Evercore’s opinion and $6.5 million of which is payable contingent upon completion of the merger transactions. Upon execution of its engagement letter with T-Mobile, Evercore also began receiving a monthly retainer fee of $100,000, for a period up to six months, for any month in which significant services are provided. In addition, T-Mobile has agreed to reimburse Evercore for its reasonable documented out-of-pocket expenses (including travel costs, fees to outside counsel and other expenses) incurred in connection with its engagement, subject to certain limitations, and to indemnify Evercore and any of its members, officers, advisors, representatives, employees, agents, affiliates or controlling persons, if any, against certain liabilities and expenses arising out of its engagement, or to contribute to payments which any of such persons might be required to make with respect to such liabilities. In addition, at the sole discretion of the T-Mobile independent committee, a discretionary fee of up to $5 million may be payable to Evercore.
Prior to Evercore’s engagement in connection with the merger transactions, Evercore and its affiliates provided financial advisory services to T-Mobile and received fees for the rendering of such services, including the reimbursement of expenses. Other than the monthly retainer fee and expense reimbursement described in the preceding paragraph, during the two-year period prior to the delivery of its opinion, no material relationship existed between Evercore and its affiliates and T-Mobile or Sprint or their respective affiliates, including Deutsche Telekom and SoftBank pursuant to which compensation was received by Evercore or its affiliates as a result of such a relationship. Evercore may provide financial or other services to T-Mobile in the future and in connection with any such services Evercore may receive compensation.
In the ordinary course of business, Evercore or its affiliates may actively trade the securities, or related derivative securities, or financial instruments of T-Mobile, Sprint and their respective affiliates, for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities or instruments.
Sprint’s Reasons for the Merger and Recommendation of the Sprint Board of Directors
At a meeting held on April 29, 2017, the Sprint board of directors unanimously determined that the business combination agreement and the transactions contemplated thereby, including the merger transactions, are fair to, and in the best interests of, Sprint and its stockholders, and approved and declared advisable the business combination agreement and the transactions contemplated thereby, including the merger transactions. The Sprint board of directors recommends that the stockholders of Sprint approve the Sprint proposal by executing and returning the written consent furnished with this joint consent solicitation statement/prospectus.
In arriving at this determination and recommendation, the Sprint board of directors reviewed and discussed a significant amount of information and consulted with Sprint’s management, legal advisors and financial advisors. The following are some of the significant factors that supported its decision to approve the business combination agreement:
| • | the Sprint board of directors’ and management’s knowledge of Sprint’s business, operations, financial condition, earnings, strategy and future prospects, and their knowledge of T-Mobile’s business, strategy and future prospects, and the assessment, based on such knowledge, that the merger transactions would be favorable to Sprint and its stockholders; |
| • | discussions with Sprint’s management and its financial advisors regarding T-Mobile’s business, assets, financial condition, business plan and prospects; |
| • | the all-stock nature of the merger transactions, which will allow Sprint stockholders to fully participate in the increased value of the combined company; |
| • | the fact that SoftBank is receiving the same per-share merger consideration as Sprint’s other stockholders; |
| • | their view that, in light of the complementary nature of the respective businesses of Sprint and T-Mobile, the business combination could result in potential aggregate annual run rate cost synergies of $6 billion or more, representing a net present value of $43 billion or more, net of expected costs to achieve such cost synergies, with the potential for additional possible synergies to be identified during integration, and the fact that Sprint stockholders will participate in the benefits from the expected synergies; |
| • | the implied value of the merger consideration of $6.13 per share of Sprint common stock based on the exchange ratio of 0.10256 per share and the unaffected closing trading price per share of T-Mobile common stock of $59.74 on the last trading day prior to the publication of media reports that Sprint and T-Mobile had reengaged in discussions regarding a possible transaction on April 9, 2018, as compared to the unaffected closing trading price per share of Sprint common stock of $5.14; |
| • | the decline in the trading price of Sprint common stock since the parties announced that the merger discussions between T-Mobile and Sprint ended on November 4, 2017; |
| • | the absence of other strategic alternatives available to Sprint that would provide comparable or superior value to Sprint stockholders, based in part on Sprint’s discussions with Company A, Company B and Company C and the fact that there were no other serious inquiries regarding a potential strategic transaction with Sprint even after widespread media reports that Sprint was considering a strategic transaction; |
| • | the benefits that Sprint was able to obtain as a result of its negotiations with T-Mobile and Deutsche Telekom, including the fact that the exchange ratio is significantly more favorable than the exchange ratio initially proposed by representatives of T-Mobile and Deutsche Telekom during the initial 2018 negotiations of the business combination transaction, and the Sprint board of directors’ belief that the exchange ratio and the other terms of the business combination agreement and other transaction agreements, taken as a whole, were the best that T-Mobile and Deutsche Telekom would be willing to accept; |
| • | their belief that the prospects of the combined company are more favorable than the standalone prospects of Sprint; |
| • | their belief that the combined company would have the scale to challenge other major U.S. wireless carriers more effectively, as compared with Sprint on a standalone basis; |
| • | their belief that the combined company would benefit consumers by being able to offer superior products at lower prices; |
| • | their belief that the combined company would have expanded 5G coverage and reliability, as compared with Sprint on a standalone basis, and that the combined company would have the ability to rapidly create a nationwide 5G network in the critical first years of the 5G innovation cycle, faster than either Sprint or T-Mobile could do separately; |
| • | the improved store footprint and improved customer service potential of the combined company, as compared with Sprint on a standalone basis; |
| • | the opportunities for growth presented by the merger transactions, including with respect to traditional wireless and new markets, including commercial and consumer Internet of Things and fixed broadband; |
| • | their belief that, based on discussions with ratings agencies prior to the execution of the business combination agreement, that the combined company would be able to achieve investment grade credit ratings; |
| • | the benefits of the roaming agreement entered into concurrently with the business combination agreement, and the fact that the roaming agreement will provide benefits to Sprint, even if the merger transactions are abandoned; |
| • | that for United States federal income tax purposes the merger transactions are intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and that U.S. holders of Sprint common stock will not recognize gain or loss; |
| • | the review by the Sprint board of directors with its financial and legal advisors of the structure of the proposed transactions and the financial and other terms of the business combination agreement, including the parties’ representations and warranties and covenants, the conditions to their respective obligations and the termination provisions, as well as the likelihood of consummation of the proposed merger transactions and the Sprint board of directors’ evaluation of the likely time period necessary to close the merger transactions; |
| • | the unanimous determination of the Sprint independent committee that the transactions contemplated by the business combination agreement, including the merger transactions, are advisable, fair to, and in the best interests of Sprint and the Sprint minority stockholders and the unanimous recommendation of the Sprint independent committee that (1) the Sprint board of directors approve and declare advisable the business combination agreement and the transactions contemplated thereby, including the merger transactions, (2) the Sprint board of directors submit the business combination agreement to Sprint’s stockholders for adoption; and (3) the Sprint board of directors recommend adoption of the business combination to Sprint’s stockholders, which determination and recommendation were based upon, among other factors, including each of the factors considered by the Sprint board of directors, the following factors considered by the Sprint independent committee: |
| • | that all Sprint stockholders, including SoftBank, its affiliates and the Sprint minority stockholders, will receive the same per-share merger consideration and the per-share merger consideration resulted from arm’s-length negotiations between the parties; |
| • | the procedural safeguards that the Sprint independent committee believed would ensure the fairness of the transactions contemplated by the business combination agreement, including the merger transactions, and permit the Sprint independent committee to effectively represent the interests of the Sprint minority stockholders, including that (1) the Sprint independent committee consists of five directors independent of, and not affiliated with, SoftBank or any of its affiliates, (2) the Sprint board of directors resolved that the Sprint board would not approve a business combination transaction with T-Mobile unless the Sprint independent committee recommended it, (3) the Sprint independent committee was empowered to reject a transaction with T-Mobile if the Sprint independent committee determined such transaction was not fair to or otherwise not in the best interests of Sprint and the Sprint minority stockholders, (4) the Sprint independent committee retained and was advised by its own legal and financial advisors and (5) the compensation of the members of the Sprint independent committee was in no way contingent on their approval of any transaction; |
| • | the Sprint independent committee was involved in frequent and extensive deliberations over a period of more than seven months, including over 15 meetings, and was provided with full access to Sprint management and advisors in connection with its evaluation; |
| • | the Sprint independent committee made its evaluation of the transactions contemplated by the business combination agreement, including the merger transactions, independent of SoftBank and its affiliates and with knowledge of the interests of SoftBank and its affiliates; |
| • | the Sprint independent committee’s review, with the advice of Centerview and Goodwin, of the agreements and transactions entered or to be entered into by SoftBank in connection with the transactions contemplated by the business combination agreement, including the amended and restated stockholders’ agreement, SoftBank support agreement and proxy agreement; and |
| • | the financial presentation and analysis of Centerview dated April 29, 2018 and the oral opinion of Centerview rendered to the Sprint independent committee on April 29, 2018, which was subsequently confirmed by delivery of a written opinion dated such date, that as |
| of such date and based upon and subject to the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion, the exchange ratio provided for pursuant to the business combination agreement was fair, from a financial point of view, to the holders of Sprint common stock (other than Sprint common stock held in treasury or held by Merger Company, the SoftBank parties, the Deutsche Telekom parties or any affiliate of Sprint or T-Mobile), as more fully described below under the section entitled “—Opinions of Sprint’s Financial Advisors—Opinion of Centerview to the Sprint Independent Committee”; |
| • | the oral opinion of Raine rendered to the Sprint board of directors on April 29, 2018, which was subsequently confirmed by delivery of a written opinion dated such date, 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, taking into account the merger, as more fully described in the section entitled “—Opinions of Sprint’s Financial Advisors”; |
| • | the oral opinion of J.P. Morgan rendered to the Sprint board of directors on April 29, 2018, which was subsequently confirmed by delivery of a written opinion dated such date, 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 in the merger was fair, from a financial point of view, to the holders of Sprint common stock as of immediately prior to the HoldCo mergers, as more fully described in the section entitled “—Opinions of Sprint’s Financial Advisors”; and |
| • | the presentations and financial analyses of Raine and J.P. Morgan provided to the Sprint board of directors in connection with the rendering of their respective opinions, as more fully described in the section entitled “—Opinions of Sprint’s Financial Advisors”. |
The Sprint board of directors also considered the following specific aspects of the business combination agreement:
| • | the exchange ratio, including the fact that the exchange ratio was fixed and so will not change in the event of a change in the market price of Sprint common stock or T-Mobile common stock; |
| • | the nature of the closing conditions included in the business combination agreement, including the regulatory and credit rating-related conditions, as well as the exceptions to the events that would constitute a material adverse effect on Sprint for purposes of the business combination agreement, as well as the likelihood of satisfaction of all conditions to the consummation of the merger transactions; |
| • | the agreement between Sprint and T-Mobile to use reasonable best efforts to consummate the merger transactions, including obtaining all required regulatory approvals; |
| • | the agreement between Sprint and T-Mobile to use reasonable best efforts to secure the credit ratings required as a condition to closing the merger transactions, and to obtain the financing necessary to consummate the transactions contemplated by the business combination agreement; |
| • | the fact that T-Mobile is not permitted to terminate the business combination agreement notwithstanding receipt of a proposal for a more favorable transaction, even in the event that the T-Mobile board of directors changes or withdraws its recommendation that the T-Mobile stockholders provide their written consent with respect to the T-Mobile proposals, and the anticipation that subsequent to the execution of the business combination agreement, Deutsche Telekom would execute a support agreement requiring it to deliver its written consent with respect to its shares of T-Mobile common stock in favor of the T-Mobile proposals, which written consent would result in the required approval for the T-Mobile proposals. |
| • | the right of Sprint’s board of directors to change its recommendation in favor of adoption of the business combination agreement, if doing so would be required for the Sprint board of directors to carry out its fiduciary duty under applicable law; |
| • | the obligation of T-Mobile to pay a $600 million fee to Sprint in certain circumstances if T-Mobile terminates the business combination agreement because the combined company is not able to meet the credit ratings condition set forth in the business combination agreement; |
| • | the agreement that T-Mobile will bear 67% of financing related fees in connection with the merger transactions, as well as 67% of fees related to filings under the HSR Act and with the FCC; |
| • | the requirement that Sprint stockholder approval be obtained as a condition to consummation of the merger transactions, and the risks related to the anticipated execution of the SoftBank support agreement; |
| • | the requirement that Deutsche Telekom’s initial independent director designations must be made in consultation with the independent directors of Sprint; and |
| • | the minority stockholder protections contained in the combined company’s certificate of incorporation and bylaws and the amended and restated stockholders’ agreement, including the noncompetition provision in the amended and restated stockholders’ agreement, the fact that the “go-private” threshold will decrease from 85% under Sprint’s current certificate of incorporation to 80.1% for the combined company in the amended and restated stockholders’ agreement, and the fact that certain governance rights of SoftBank and Deutsche Telekom will be eliminated in connection with decreases in their ownership of the combined company. |
The Sprint board of directors also considered potential risks and potential negative factors concerning the merger transactions in connection with its deliberations, including:
| • | the restrictions on the conduct of Sprint’s business during the period between execution of the business combination agreement and the closing of the merger transactions; |
| • | the risk that regulatory agencies may not approve the merger transactions or may impose terms and conditions on their approvals that in retrospect adversely affect the business and financial results of the combined company following the merger transactions, and the fact that the business combination agreement does not include a reverse termination fee payable by T-Mobile in the event that regulatory agencies fail to approve the merger transactions (see “The Merger Transactions—Regulatory Approvals Required for the Merger Transactions”); |
| • | the prohibition on Sprint’s ability to solicit alternative transactions prior to closing or termination of the business combination agreement; |
| • | the fact that Sprint is not permitted to terminate the business combination agreement notwithstanding receipt of a proposal for a more favorable transaction, even in the event that the Sprint board of directors changes or withdraws its recommendation that the Sprint stockholders provide their written consent with respect to the Sprint proposals, and the anticipation that subsequent to the execution of the business combination agreement, SoftBank would execute a support agreement requiring it to deliver its written consent with respect to its shares of Sprint common stock in favor of the Sprint proposals, which written consent would result in the required approval for the Sprint proposals without the need for additional approval from any of the Sprint minority stockholders; |
| • | the transaction costs to be incurred in connection with the proposed transactions; |
| • | the interests of SoftBank with respect to the merger transactions that are in addition to, or that may be different from, the interests of the Sprint minority stockholders, including SoftBank’s director designation rights in the combined company, SoftBank’s consent rights with respect to certain actions of the combined company, SoftBank’s matching right for a sale of the combined company, SoftBank’s right to acquire stock of the combined company and SoftBank’s right of first refusal for sales of the combined company’s stock by Deutsche Telekom; |
