(Reuters) – SoftBank Group Corp’s (9984.T) board of directors is having doubts about the merger it has been negotiating between its U.S. wireless subsidiary Sprint Corp (S.N) and T-Mobile US Inc (TMUS.O), due to fears of losing control of a combined entity, a source familiar with the matter told Reuters on Monday.
The doubts could derail SoftBank’s plan, discussed on and off for more than six months, to reshape the U.S. wireless sector by merging the two companies into a single carrier with more than 130 million U.S. subscribers, behind Verizon Communications Inc (VZ.N) and AT&T Inc (T.N).
It would be the second time such a deal has failed. Sprint and T-Mobile came close to announcing a merger in 2014 but called it off at the last minute due to regulatory concerns.
Sprint shares fell as much as 13 percent on Monday, but pared losses and were down 7 percent in late-afternoon trading. T-Mobile shares were down 4.5 percent.
Several SoftBank directors urged the Japanese company’s Chief Executive Masayoshi Son on Friday to reconsider the merger of Sprint and T-Mobile because the terms being discussed would result in SoftBank losing control of one of its largest assets, the source told Reuters.
Sprint, T-Mobile, Deutsche Telekom and SoftBank declined to comment.
While Son has negotiated with T-Mobile’s majority owner, Germany’s Deutsche Telekom AG (DTEGn.DE), on the basis that SoftBank and other Sprint shareholders would own around 40 percent of the combined company, he now shares the concerns of the SoftBank directors questioning the benefits of such an ownership arrangement, the source said.
As of Monday, T-Mobile was trying to keep talks alive, according to separate sources familiar with the matter.
Its parent Deutsche Telekom would like to reach an agreement with Sprint on a deal, but it insists on governance control and the right to consolidate the combined company, the sources said.
Earlier on Monday, Nikkei reported that SoftBank was expected to approach Deutsche Telekom as early as Tuesday to propose ending the merger negotiations. The Reuters source could not confirm this, and sources close to T-Mobile said they were unaware of any such decision by SoftBank.
The Wall Street Journal also reported on Monday that Sprint had called the merger talks off and would make a significant investment in its network instead.
The due diligence between T-Mobile and Sprint was almost complete and the focus had shifted to working out a business plan for the combined company as well as an integration strategy, sources had told Reuters last week.
Even so, it was not clear that U.S. regulators would clear a deal between the two carriers.
Sprint’s junk bonds were among the hardest hit in Monday afternoon trading after the Nikkei reported the deal was on shaky ground, IFR reported.
Analysts have expected consolidation in the U.S. wireless industry to ease pricing pressure in the market, which could benefit AT&T and Verizon, who have lost share to their smaller rivals. Cable companies Comcast Corp (CMCSA.O) and Charter Communications Inc (CHTR.O) are also entering the market with wireless service on Verizon’s airwaves.
“With no merger of Sprint and T-Mobile, as well as the entrance of Comcast and Charter into wireless, we expect Verizon to have a difficult run going forward,” said Philip Cusick, an analyst at JPMorgan, in a research note.
“Sprint as well could struggle to maintain positive subscriber momentum as cable enters, making its balance sheet look unsustainable.”
Reporting by Greg Roumeliotis in New York; Additional reporting by Liana B. Baker in San Francisco, Pamela Barbaglia in London and Anjali Athavaley in New York; Editing by Arun Koyyur and Bill Rigby