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Little Fish Iliad Tries to Gobble Big Fish T-Mobile in Mobile Phone Takeover

NEW YORK (TheStreet) -- Iliad (ILIAY), the fourth-largest mobile phone company in France, jumped into the T-Mobile (TMUS - Get Report) bidding war yesterday, offering $15 billion in a counter to Sprint's  (S) higher-price offer. T-Mobile stock was up 0.43% to $33.08 on the news, as of 12:30 p.m. Friday.

But is Iliad's bid realistic?

Iliad controls mobile company Free Mobile in France and considers itself a disruptor in the mobile space, just like T-Mobile. Launched two years ago on the back of a free WiFi hotspot the company had built, Free introduced a mobile plan half the price of what other carriers were charging.

In the process Free Mobile snagged 13% of the French mobile market.

The $33-per-share offer from Iliad for 56.6% of T-Mobile is an all-cash deal that the company plans to finance with debt and equity.

Iliad currently has 14.3 million subscribers, with only 8.6 million of them wireless. This pales in comparison to T-Mobile, with its 50.5 million wireless subscribers.

So far, the offer is considered inferior to the Softbank offer to purchase T-Mobile, with many wondering how Iliad -- with only a $16 billion market cap itself -- would win the approval of Deutsche Telekom, parent company of T-Mobile.

Iliad's offer is $7 per share below the purported $40 a share offer Sprint has offered.

Sprint and T-Mobile are in the process of working out the details of the offer and the regulatory hurdles than exist. This is the main reason the likely initial offer from Iliad was lower -- much too low, according to TheStreet's Antoine Gara. The barriers to approval for Iliad for a T-Mobile buyout are much lower than that of shrinking the U.S wireless market by another player, something that is weighing on U.S regulators.

"SoftBank has been told in many very clear coded words that the Department of Justice and the FCC would probably not approve the acquisition," said Reed Hundt, a former chairman of the U.S. Federal Communications Commission. "There's no question to me that the FCC would say 'bienvenue'" to the proposed Iliad deal.

In 2011, Deutsche Telekom had agreed to sell T-Mobile to AT&T (T) for $39 billion, but the deal was quashed by regulators and resulted in a very nice $6 billion break-up fee being paid to Deutsche. The current deal with Sprint may face even higher approval hurdles given the disruptor position T-Mobile has won in the U.S.

If Iliad is indeed serious about this bid and in the process increases its offer, the chances for approval will grow tremendously. The deal would likely meet quicker regulatory approval too, given Iliad's disruptor reputation in France. Since entering the market it has forced mobile prices down 30% in two years.

If Iliad somehow manages to win the T-Mobile bidding war it could result in another dramatic price war in the U.S mobile market -- great news for consumers here.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

TheStreet Ratings team rates AT&T INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate AT&T INC (T) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels, largely solid financial position with reasonable debt levels by most measures, notable return on equity and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 3.5%. Since the same quarter one year prior, revenues slightly increased by 1.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.91, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that T's debt-to-equity ratio is low, the quick ratio, which is currently 0.56, displays a potential problem in covering short-term cash needs.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Diversified Telecommunication Services industry and the overall market on the basis of return on equity, AT&T INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • The gross profit margin for AT&T INC is rather high; currently it is at 56.37%. Regardless of T's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 10.88% trails the industry average.

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