T-Mobile (TMUS) Stake Would Be Materially FCF Accretive for Iliad - Goldman

In a research note, analyst Andrew Lee discussed Iliad's $33 per share offer for a controlling stake in T-Mobile (NYSE: TMUS), which was announced yesterday (more here). In Lee's view, the deal would be "materially FCF accretive."

"On our analysis, if T-Mobile US grows in-line with our DT model forecasts, the proposed deal could be more than 50% earnings and FCF accretive by 2017 even if no synergies are achieved. Our scenario analysis suggests (range of $33-$41 value for the shares): 1) Should T-Mobile US grow in-line with our DT model forecasts – our 10% 5-year CAGR forecast for T-Mobile assumes opex synergies from its recent acquisition of Metro PCS but also material incremental spectrum spend and no market share gains. In this scenario, we calculate the deal would be 40%-60% 2017 EPS accretive, valuing Iliad at 6.3%-7.3% 2017 FCF yield," said Lee.

"The combined entity would grow EBITDA 7.1% CAGR 2016-18 and 6.5% in 2018. 2) Iliad could deliver target synergies – we argue Iliad has a strong history of execution in France as a challenger asset. If it can achieve half its target synergies we calculate the deal would be 70%-90% 2017 EPS accretive, valuing Iliad at 7.9%-9.0% 2017 FCF yield. 3) We continue to see a high probability of M&A in French telecoms which could see Iliad crystallise €4-7bn of synergy benefits. We calculate that a US deal could mean the newco’s 2015E net debt/EBITDA is 4.3-4.6x. But given the significant cash flow generation, we believe this would only postpone Iliad’s ability to take part in French M&A by one year," he added.

Traders are watching shares T-Mobile as well as prospective rival bidder Sprint Corporation (NYSE: S).

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