Description

Trade set-up: Set the spread on full terms buy purchasing Sprint common stock and shorting T-Mobile, and hold the spread until the closing of the transaction.

After several iterations/ years the Sprint T-Mobile transaction is set to close over the next 45-60 days (I am using April 6th) . The current last mile spread, may look un-interesting to some, but with the potential for market volatility to increase from low levels, and my unwillingness to participate in buying weekly call options on Tesla and SPCE…I think camping out to make ~7.5% over the next several weeks seems a bit safer despite the general reward versus risk of merger arbitrage situations. I expect the spread to compress quickly, and still be attractive at tighter levels.

Why do we have this opportunity?

Sprint and T-Mobile are essentially in the “red zone” using the “jumbo package” of receiving all necessary regulatory approvals to close their merger. One of the final steps, was the inevitable restructuring of the terms of the merger agreement. Yesterday, February 19th, S/TMUS amended the terms of the merger agreement seen below.

The amendment does not change the exchange ratio for S shareholders other than SoftBank, who will continue to receive 0.10256 TMUS shares per S share; the “out” date has been extended to 7/1/20; the goal is to close the merger as early as 4/1/20. I believe they may close this transaction in early April, but could take some added time more for clerical closing conditions rather than anything more material to being able to effectuate the merger.

Merger Closing: Unless otherwise mutually agreed in writing between Sprint and T-Mobile, the closing of the Merger Transactions (the “Closing”) shall take place at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York 10019, at 9:00 a.m., New York time, on the first day of a calendar month, other than any month that is the third month of a calendar quarter (or, if such day is not a business day, the following business day), which such day (the “Closing Date”) is at least 3 business days following the day on which the last to be satisfied or waived (other than those conditions that are not legally permitted to be waived) of the conditions set forth in Article VII.

Gross spread return: ~7.5%

Recap of Timeline:

• April 29, 2018: Merger Announcement with board approvals

• December 2018: CFIUS approval

• July 2019: HSR anti-trust approval

• October 2019: FCC approval

• February 2020: States approval

• April 2020 (could be until July 1st): Merger close

Financing: no longer a condition. TMUS has secured and financed $35 billion of debt (Bridge, Revolver, Term Loan(s))

Other parties/advisors to the transaction: Fairness opinion from Centerview and JP Morgan

Summary: set the merger spread to generate a 7.5% gross return over the next 45-60 days

Catalyst

Merger close