On February 12th, Southern District Judge Victor Marrero ruled that T-Mobile and Sprint’s $26 billion merger should be allowed, disagreeing with a coalition of 14 state attorneys general that sued to block the deal. Sprint/T-Mobile/Softbank all rallied on the news, with Sprint up 77.5%, T-Mobile up 11.8%, and Softbank up 12.4%. As we discussed in the weekly newsletter on January 12th, the merger arbitrage spread of the deal was 66%. Even now there is still an arbitrage opportunity of 13.9%.

As shown in the chart below, during the last 4 years, T-Mobile’s highly successful “Un-carrier” strategy has helped the company to gain nearly all the net smartphone subscribers in the wireless industry. With the addition of Sprint, the combined entity, “New T-Mobile”, will have a postpaid subscriber of 69.9M, larger than AT&T’s 63.0M postpaid phone subscribers and significantly closing the gap to Verizon. After John Legere steps down and starts his new chapter, Mike Sievert, the current COO of T-Mobile, would become the CEO in May 2020. Mike is credited as the major architect of the “Un-carrier” strategy. We believe “New T-Mobile” will continue to successfully acquire new customers and prosper under Mike’s leadership. The to-do-list for "New T-Mobile" is long, including a complex integration process, leveraging Sprint’s 2.5Ghz spectrum into 5G rollout, pushing wireless broadband into rural America, and expanding MVNO partnership with cable companies. We will discuss them in more detail in our future letters.

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Softbank also reported earnings on the same day where Masayoshi Son was using the “tide is turning” as the main theme of the presentation. There were both good and bad in the earnings, but we agree that the positive development in Softbank’s key assets outweighs its trouble in Vision fund.

• When Sprint closes its deal with T-Mobile, Softbank will own 27% of the new T-Mobile, which we believe will be significantly more valuable over time.

• The deal also removes a massive $44.6 billion (4,902 billion yen) Sprint debt off Softbank’s consolidated balance sheet.

• Alibaba continued to contribute to the bottom line with Softbank holding $146.3 billion of its shares, up from $112.7 billion from the last quarter.

On the other hand, Softbank Vision Fund again took a $2 billion loss and Masayoshi Son expected to scale back on the second Vision Fund. Softbank’s share might continue to be volatile as the majority of its investments are concentrated on a few technology/telecom names that are subject to large market swings.