Updated from Sept. 20 with new information.

The much-anticipated, long-hyped merger of Sprint (S) and T-Mobile (TMUS)  may finally materialize with the parent companies coming together on an agreement to split ownership, according to a Reuters report citing sources familiar with the matter. 

Shares of Sprint gained about 3.5% to $8.32 in pre-market trading on Friday, putting its market cap at about $32.1 billion. T-Mobile was essentially flat, dipping 0.2% to $63.39 before the open. The carriers did not immediately respond to queries about the report.

The merger will encounter massive challenges, from winning regulatory approval for a deal that would eliminate a wireless competitor, to integrating two national carriers and deciding which brands would survive.

Dividing up ownership is one of the first issues that Sprint, T-Mobile and their controlling shareholders have to address. Reuters reports that T-Mobile parent Deutsche Telekom will hold a majority stake in the combined telecom, with Sprint parent Softbank taking a 40% to 50% equity stake.

Deutsche Telekom, which owns close to 65% of T-Mobile, has a stronger negotiating position, since T-Mobile has thrived as a stand alone carrier, taking share from AT&T (T) and Verizon (VZ) , and does not need a merger. 

Sprint, for its part, has made some progress under CEO Marcelo Claure. The company has gained post-paid phone subscriptions, but also has higher levels of churn -- or customer defections -- than its rival carriers. In the current talks, Softbank CEO Masayoshi Son has reportedly acquiesced on giving up control over the telecom that he initially acquired in a 2013 bidding war with Dish (DISH) Chairman Charlie Ergen. The Japanese tech and telecom conglomerate controls about 83% of Sprint's equity.

While Deutsche Telekom could therefore maintain control, Moody's Investor Service analyst Mark Stodden said it wouldn't come cheap.

An all-stock merger would dilute Deutsche Telekom's stake in the merged companies to about 40%, Stodden calculated. Softbank would hold 30% and public shareholders would have the remaining 30%.

"Deutsche Telekom could acquire shares of the new company from Softbank or public equity holders to increase its stake back to 51%," Stodden noted in an email. But the German telecom would have to spend about $10 billion to acquire 150 million shares of the post-merger telecom to do so, at the roughly $65 per share price where T-Mobile has traded amid the merger buzz.

As an alternative, T-Mobile could issue up to 260 million additional shares of its stock, Stodden suggested, which would raise $17 billion at today's price of about $65 per share. But that would still leave Deutsche Telekom and T-Mobile about $19 billion short of the $36 billion equity value that Stodden assigns to Sprint. "[T]his would require a large debt raise by T-Mobile," he noted.  

Deutsche Telekom could also do some combination of the two, ponying up some of the cash to buy up shares and raising some capital at T-Mobile. 

And even if Deutsche Telekom and Softbank agree to terms, there is no assurance that the Department of Justice and Federal Communications Commission will give their blessing to the deal. Divvying up ownership would be a start, however.

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