Cogent Communications - Sprint Wireline Acquisition Closed
May 1, 2023
This morning it was announced that Cogent closed on its acquisition of Sprint Wireline (officially the former Sprint Global Markets Group, or Sprint GMG) from T-Mobile. This deal is transformational in many respects and Cogent was one of the few companies that could acquire a money-losing business, extract significant cost efficiencies, and repurpose the assets to open new, non-cannibalistic end addressable markets.
Management has highlighted that Cogent should benefit from this acquisition in multiple ways.
$700m of cash payments from T-Mobile, paid out over 4.5 years. The net amount will be lower due to integration costs, but still substantial relative to Cogent’s market cap.
Annual run-rate network cost synergies enumerated to be $215-225m by year 3 after closing, presumably 60-70% of which will be achieved within the first year of ownership. After these are realized, Sprint GMG will generate positive EBITDA and cash flow excluding any other benefits.
New wholesale connectivity TAM of >$3b (between wavelengths and dark fiber), of which Cogent currently has zero and Sprint GMG has about $8m in run-rate revenue. It will take some time to integrate the networks so that Cogent can address most of this market, but there’s nowhere to go but up.
Data center assets, 47 of which can be repurposed as co-location facilities. Currently Sprint collects roughly $1m of revenue from colo. Again, nothing but upside on this front.
At a conference presentation In December 2022, Dave Schaeffer had this to say about the financial potential of this deal:
“When we put all these pieces together with the fact that Cogent has not issued equity, in fact, has bought back equity since being public, we should be in a position to be producing better than $9 a share of free cash, up from the $2 a share that we're producing today.”
