T-Mobile (TMUS) to be acquired?

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Here's why TMUS is extremely undervalued and could be acquired any day.

First off, let's look at Market Cap. It's hard to find an accurate number. Google Finance states that the Market cap is $13.62B. Yahoo Finance reports $5.53B. Finviz reports $3.5B. Both of the brokerages that I use, Tradeking and TD Ameritrade, match Finviz at $3.5B. I don't know where these numbers are coming from, but no one seems to know the real market cap of TMUS. After pouring through their latest SEC filings, I still haven't come up with a solid answer. For the sake of this article, we'll go with $13.62B that Google Finance is reporting.

You might be wondering at this point how a company that had a $39B buyout offer from AT&T (T) just a few short years ago is now only worth $13.62B. Why isn't the market cap higher?

The answer: Debt. Due to the way TMUS structured its merger of Metro PCS, the old owner of T-Mobile, Deutsche Telekom (DT) has "indentured" TMUS with debt to be paid out starting in 2019 - to the tune of $11.2B. This way, any company buying TMUS would take on that debt, and DT wouldn't lose out on its investment. DT also owns 70% of the stock - but has a lockup period of 18 months before it can sell.

Valuation: Now let's talk about valuation. We think the $39B buyout offer from AT&T (T) was a little bit on the high end. However, T-Mobile's spectrum alone is worth $26B as an "indefinate intagible asset", according to their latest SEC Filing.

So, with a 40 million customers and a big chunk of Spectrum, a $30B-$35B price tag does not sound that outlandish at all. Dish Network currently has a bid on Sprint for $25B.

Let's say a potential suitor comes along and offers a deal for TMUS. The deal would most likely be for around $20b for the stock (plus taking on the $11B in debt). This would be fairly reasonable at a total price of $31b.

If the buyout does occur in the near future, it could mean a share price of approximately $30 a share at buyout.

This would be a drop in the bucket for Potential suitors like SoftBank, Google (GOOG), or Direct TV (DTV).

Mastery Bottom Line:

TMUS has been flying under the radar for the last couple of weeks after IPO. Not many investors/traders are even aware the company has gone public. The downside risk here is very limited with a lot of upside potential. Of course, do your own due diligence before investing in TMUS.

Lastly, in case you missed it - T-Mobile CEO Jon Legere was on CNBC on May 1st (the day of the TMUS IPO) sounding like he's ready to sell the company already. Here is a link to the video. One of the potential players is Dish Networks, and Legere said that he would "love to talk to them."