Running head: BUSINESS PLAN 1

Deliverable 7 - Business Plan

Vinh Nguyen

Rasmussen University

FIN6466CBE: Financial Analysis and Decision Making

Dr. Audra Sherwood

Due Date: 03/13/2023

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Introduction

T-Mobile was established in 1994 as the mobile telecommunication company with its

headquarters based in Washington, United States. The company provides 86 million postpaid,

prepaid customers, a comprehensive range of cellular gadgets and accessories, as well as

competitively priced wireless communications services. Similarly, Sprint Corporation was

established in 1899 as the telecommunication company with its headquarters based in Kansas,

United States. As of 2019, Sprint Corporation was the 4th largest mobile operator in the United

States.

T-Mobile and Sprint have decided to merge under the name New T-Mobile, which was

officially established in April 2018, per a Business Combination Agreement between the two

companies. T-Mobile is expected to expand and strengthen into a powerful new entity, ready to

take on all comers in the telecom business and beyond. Therefore, this report aims to provide a

business plan which shows the benefits of the new merger.

Financial Position of Each Company

The financial position of each company will be analyzed by looking at their financial

statements over a period of 3 years from 2017-2019.

The data is used from the annual reports of T-Mobile (Tmobileannualreport, 2019). In

2017, the company’s revenue amounted to $40.6bn with an 8.3% increase compared to 2016.

The net income of T-Mobile was $2.3bn and the free cash flows were $2.7bn in 2017. The

financials of T-Mobile in 2019 showed record high performance. The total revenue of T-Mobile

in 2019 stood at a record high of $45bn with a growth of 3.9% compared to previous year.

Furthermore, the net income amounted to $3.5bn with an increase of 20.1% compared to 2018

when the net income stood at $2.9bn. Free cash flow of T-Mobile in 2019 was $4.3bn which is
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21.6% increase compared to 2018 when the cash flows amounted to $3.5bn. The total assets of

the company were $86bn, $72bn and $70.5bn in 2019, 2018 and 2017 respectively. This shows

an increase of 22% in total assets in 2019 compared to 2017. Whereas the total liabilities of the

company were $58bn, $48bn and $28bn in 2019, 2018 and 2017 respectively. The total

stockholder’s equity amounted to $28bn, $24bn and $23bn in 2019, 2018 and 2017 respectively

with an increase of $4bn from 2018 to 2019.

The data is used from the annual report of Sprint Corporation (Sprintannualreport,2019).

The company reported fluctuating net income over the last 3 years with the company making

profit one year and loss the next year. It showed a net loss in 2019 of $1.9bn whereas it stood at

net profits of $7.4bn in 2018 and a net loss of $1.2bn in 2017. The free cash flows of the

company significantly increased in 2018 as compared to 2017 from $2.9bn to $6.7bn and then

showed a slight increase in 2019 with a total of $7.0bn. The revenue of the company remained

the same with $33bn in 2017, $32bn in 2018 and $34bn in 2019. The total assets of the company

decreased in 2019 as compared to 2018 by $1bn where they amounted to $85bn in 2018 and

$84bn in 2019. There was also a decrease in total liabilities which stood at $58bn in 2019 and

59bn in 2018. Furthermore, the shareholder’s equity also slightly decreased with an amount of

$26.1bn in 2019 and 26.4bn in 2018.

The evaluation of financial position of the two companies shows that the financial

position of T-Mobile has been a record high in 2019 and also has been showing a year-on-year

growth in its financials whereas the Spring Corporation is showing an unsteady performance

financially. Therefore, it would be better for Spring Corporation to merge with a high-

performing company like T-Mobile and gain synergies to perform better.

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Collated Financial Ethics Plan for The New Merger

Both T-Mobile and Springs Corporation take their ethical conduct rigorously in both their

usual and financial operations. Springs Corporation follows Code of Ethics, Springs Code of

Conduct and Corporate Governance Guidelines to practice ethical conduct in the business

activities (Springannualreports, 2019). On the other hand, T-Mobile won the award of Most

Ethical Company for the 12th year due to its ethical business standards and conduct (Tmobile,

2020). T-Mobile’s Code of Conduct has “Do it the right way” embedded as the heart of the

guideline where every employee, partner, supplier, manager, contractor is provided training on

how the company expects them to conduct and involve in business dealings.

For the new merger, the award-winning strategy of T-Mobile would be kept in place of

“Do it the Right Way”. A Code of Ethics would be applicable to the senior level of CEOs, CFOs,

CAOs, and Treasurer to ensure that the tone set at the top is of complying with ethics so that the

bottom level of employees ensure similar behavior in their conduct. One of the major financial

ethical plans in new mergers would be confidentiality. Since both companies will be revealing

significant confidential financial information to each other, the major ethical practice would be to

maintain confidentiality of each company. Moreover, the new merger should establish a new

Business Ethics Code of Conduct and provide training to employees, supervisors, managers,

suppliers with the new code to ensure that the new merger is aware of the ethical expectations in

their financial and business practices.

New Financial Strategy to Enhance The “One Company” After the Merger

Once the merger is completed and T-Mobile and Sprint Corporation have become one

entity, then it is important to devise new financial strategies to ensure that the large company is

managed efficiently. For this reason, the first and foremost step is to integrate the finance and
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operation teams of both companies into one. This would involve planning the top finance

functions and assigning each task to a team. Furthermore, each finance team must have a leader

that is held accountable for all the transactions and recording. Financial managers must be

appointed that will supervise the department. The corporate synergies once the merger has taken

place are likely to arise which must be highlighted by the managers to evaluate how well the

company is performing post-merger.

Once the finance team is established, a new financial strategy can be devised for the

merger. The most important strategy for T-Mobile would be to launch 5G connectivity and

devices that are compatible with it. This new strategy requires investments which can either be

attained from raising shares or the company can also take loan in order to finance the

development and launch of 5G.

Joined Company Investments and Strategies to Maximize Returns and Minimize Risks

Sprint stock prices sky-rocketed by 70% just after the announcement of megamerger to

take place with T-Mobile in 2019 (Businessinsider, 2020). This shows that the investors hold an

optimistic view of the new merger and are likely to invest in the company as their speculations

have led to increase in stock prices of Sprint Corporation (Sundaram, 2019). However, the best

strategy to maximize returns and minimize risks would be to diversify the portfolio as stated by

Modern Portfolio Theory. Diversification involves building a portfolio with different assets or

different asset classes that have different expected risk and returns. Thus, investments made in

the new merger as well as some investments in small-cap firms that are less risky.

Industry Trend Analysis to Determine the Merger’s New Financial Sustainability

The Telecommunication Industry trend analysis shows that the industry has grown over

the past decade and is expected to show CAGR of 3.67% over the forecasted period of 2018-
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2028 (Mordor, 2023). The firms in the telecom industry have several business opportunities; T-

Mobile as well as its competitors such as AT&T, Verizon are still in infancy of 5G, but they have

already started preparing for the next big launch of 6G which shows promising growth and

financial stability for the new merger because of the expanding opportunities. Moreover, United

States provides the telecom industry a reliable telecommunication infrastructure with expanding

fiber and wireless deployments.

The market size of United States telecom industry is amounted to $301bn as of 2019 with

a forecast to grow steadily over the next years (IBIS, 2022). This again shows that the new

merger is operating in the industry that shows promising growth thus financial stability in the

near future for the merger.

Moreover, the competition in the Telecommunication industry is significantly

consolidated as few major players dominate the market such as AT&T, Verizon and T-Mobile

(IBIS, 2022). Even in the face of intense rivalry and a race to the forefront of innovation in fields

as diverse as high-end corporate connectivity, market share leaders are still enjoying substantial

advantages. New offerings and launches, mergers and acquisitions, network development, and

price reductions are some of the most common tactics used by industry players. Therefore, a

strategy to merge with Sprint will serve as a huge opportunity for T-Mobile to expand its

operations and gain a larger market share.

Financial Risk, Cost of Capital, and Any Risk Tradeoffs with The New Merger

The Beta of T-Mobile is 0.45 which shows that the stock of T-Mobile is less volatile than

the market (infrontanalytics). Beta is a statistical component that measures the volatility of the

stock against the volatility of the market. Thus, T-Mobile’s beta of 0.45 shows that when the

market is moving up, the stock of T-Mobile will show less volatility and will rise less compared
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to the market movement and vice versa. The current stock price of T-Mobile as of December 31,

2019 was measured as $78.42 which is an increase by 23% compared to 2018 when the stock

price closed at $63.61. It is expected that the stock prices are likely to increase post-merger

announcement with Sprint Corporation. On the other hand, the beta of Sprint Corporation in

2019 is 1.06 which means that the stocks are more volatile than the market making it riskier to

invest in Sprint Corporation.

The cost of capital of T-Mobile as of 2019 is 4.81% meaning that company needs to pay

$0.481 to borrow an additional $1 for investment. The cost of raising capital is not so high for T-

Mobile. Furthermore, T-Mobile ROIC is 3.29% which means that the company is only

generating a return of 3.29% while the cost of maintaining the investment is 4.81% high. On the

other hand, Sprint Corporation has a cost of capital of 7.06% which means that the cost of raising

capital for Sprint Corporation is high.

As stated above, Sprint stock prices sky-rocketed by 70% just after the announcement of

megamerger to take place with T-Mobile in 2019 (Businessinsider, 2020). This shows that the

news of merger is taken positively by the investors thus likely to trade-off the risk of investing in

the highly volatile stocks of Sprint with investing in the new merger.
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References

Businessinsider. (2020). Sprint surges 73% after its megamerger with T-Mobile gets the go-

ahead. Retrieved from https://markets.businessinsider.com/news/stocks/sprint-skyrockets-

60-percent-t-mobile-merger-set-go-ahead-2020-2-1028892906.

TMUS. (2023). WACC Percentage. Retrieved from

https://www.gurufocus.com/term/wacc/TMUS/WACC-Percentage/TMUS.

IBIS. (2022). Wireless Telecommunications Carriers in the US - Market Size 2004–2028.

Retrieved from https://www.ibisworld.com/industry-statistics/market-size/wireless-

telecommunications-carriers-united-states/.

Infrontanalytics. Levered/Unlevered Beta of T-Mobile US Inc. (TMUS | USA). Retrieved from

https://www.infrontanalytics.com/fe-en/41369NU/T-Mobile-US-Inc-/Beta.

Mordor. (2023). United States Telecom Market - Growth, Trends, Covid-19 Impact, And

Forecasts (2023 - 2028). Retrieved from https://www.mordorintelligence.com/industry-

reports/united-states-telecom-market#:~:text=Subscriber%20penetration%20for%20FY

%202021,by%20the%20end%20of%202025.

Sprintannualreport. (2019). Annual Reports. Retrieved from

https://www.sec.gov/Archives/edgar/data/101830/000010183019000022/

sprintcorp201810-k.htm#sB4D0626B26615457958884A7DBFC3DB8.

Sundaram, A. (2019). Investors are ‘too optimistic’ a Sprint and T-Mobile merger will ultimately

happen. Retrieved from https://www.cnbc.com/2019/06/17/investors-are-too-optimistic-a-

sprint-and-t-mobile-merger-will-ultimately-happen-analysts-say.html.
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Tmobileannualreport. (2019). Annual Reports. Retrieved from

https://investor.t-mobile.com/financials/annual-reports/default.aspx.

Tmobile. (2020). T-Mobile Again Named a World's Most Ethical Company. Retrieved from

https://www.t-mobile.com/news/press/t-mobile-worlds-most-ethical-companies