T-Mobile Takes a Small Strategic Threat Off the Table by Buying Mint

T-Mobile TMUS will acquire Ka’ena Corp., parent of Mint Mobile, for up to $1.35 billion in a combination of cash and stock, bringing on actor, famous co-owner and Mint brand ambassador Ryan Reynolds in a “creative role.” The transaction ensures that Mint will remain exclusively on the T-Mobile network and prevents the brand from ending up in the hands of rivals that could have used it to threaten the competitive balance among T-Mobile, Verizon, and AT&T. Our T-Mobile fair value estimate remains $165 per share.

The companies did not disclose financial details or the number of customers Ka’ena serves across its brands, which also include Ultra Mobile. Given the price paid for the firm, we suspect it serves somewhere around 3-4 million customers, or only about 1% of the U.S. wireless market. T-Mobile ensures that perhaps somewhere around $500 million of high-margin wholesale revenue stays on the books (a bit less than 1% of its annual wireless service revenue), making the terms of the deal at least reasonable. Otherwise, we don’t see major long-term strategic benefits from the acquisition, outside of creative marketing, revolving around a $15 per month price point for 4 GB of data.

Acquiring Ka’ena does keep the firm away from Dish Network or one of the cable companies, benefiting the big three wireless carriers generally. While Dish likely would not have the financial resources for an acquisition, it would certainly have been interested in adding Mint as a wholesale customer to leverage its ongoing network buildout. Charter and Comcast also could have been interested in using Mint to accelerate their wireless ambitions.