T-Mobile and Sprint are entering due diligence in a stock-for-stock deal that is expected to make Deutsche Telekom the controlling owner, sources tell CNBC’s David Faber.

The stock exchange ratio is expected to be at market, the sources said. The companies are hoping to reach an agreement by the third week of October. Faber said a deal “seems likely” at this point, and the two companies would be able to wring significant costs out of a combined operation.

But a merger of the third and fourth largest mobile phone carriers in the U.S. would raise questions about whether regulators would allow the combination or block it on anti-trust grounds.

Shares of T-Mobile were slightly lower on Monday to about $63.47, but are still up about 10 percent this year. Meanwhile, shares of Sprint fell more than 6 percent Monday and are now down more than 5 percent for the year, at around $7.97. T-Mobile is the bigger company in terms of market value, at $53 billion versus $32 billion, according to FactSet.

T-Mobile is owned by Deutsche Telekom while Sprint is controlled by SoftBank, which had also explored a possible combination of Sprint with Charter Communications. That latter transaction was put on hold given the T-Mobile-Sprint talks.

Minority owners would own about mid-30 percent of combined company, sources said.

The two sides have had on-again, off-again talks. While T-Mobile’s CEO John Legere seems likely to lead a combined company, SoftBank’s Masayoshi Son is expected to want a say in how the company is run.

Source: Tech CNBC
T-Mobile and Sprint stock-for-stock deal to reflect 'at market' price: Sources