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Sprint and T-Mobile USA Agree to $2 Billion Break-Up Fee if Merger Fails

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USA based Sprint and T Mobile USA are reported to have agreed to a USD2 billion break up fee if a planned merger between the companies is blocked by the regulators.

There is widespread expectation that Softbank will launch an agreed takeover for T-Mobile USA valuing the company at around USD32 billion, but a CNBC report suggested that such a deal is still weeks from being announced.

In the event of a regulatory block to the merger, then Sprint would make a payment of USD2 billion to T-Mobile USA as compensation.

The break-up fee is a seen as a sign of how risky the parties consider the deal, as there is considerable disruption during the process, and if it fails, then the acquiring company usually has to pay some form of compensation.

T-Mobile secured a massive payout when AT&T's attempt to buy it was blocked by regulators. The payout from a failed Sprint bid while still substantial would be less than the AT&T break-up fee as there is increasing signs that the regulators will permit this latest deal.

Although the regulators are wary, and likely to demand their pound of flesh from the merger, there is growing acceptance that the market risks becomeing a Verizon/AT&T duopoly with a clutch of smaller networks, unless a strong third player emerges. A merger between Sprint and T-Mobile delivers that third player, even as it consolidates the market into fewer operators.

In addition, the CNBC report suggested that the merged company would drop the Sprint brandname, becoming a much larger T-Mobile operator, with T-Mobile chief executive John Legere as CEO.

CNBC said a deal is expected to be announced in late July or early August.

On the web: CNBC

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Tags: t-mobile usa  sprint  USA