It was a step forward, two steps back for the $26.5 billion T-Mobile-Sprint merger. Last month, FCC president Ajit Pai recommended approving the agreement, but the Justice Department has not yet made a decision. Among the rumors that the Justice Department wants T-Mobile and Sprint to help establish a new competitor in exchange for its approval, Pai would meet DOJ antitrust leader Makan Delrahim on Friday to try to convince him to approve the deal.
And now, the attorneys general of nine states and the District of Columbia (all Democrats) have filed a lawsuit in New York today trying to block the transaction. Despite T-Mobile’s commitment to freeze its prices for three years after the deal closes, the plaintiffs claim that the merger will hurt competition in the wireless sector and increase prices by at least $4.5 billion years.
Yes, the merger of T-Mobile and Sprint into a single company will reduce some major US carriers by 25%. However, a more robust T-Mobile-Sprint could provide more competition to AT&T and Verizon, keeping the two main US carriers more honest with their prices. And if the deal closes, T-Mobile and Sprint have promised the FCC that it will sell Sprint’s prepaid Boost Mobile unit. With Amazon, which is said to be interested in Boost, the company’s deep pockets could allow it to use Boost to create a new postpaid wireless service provider across the country. Sprint and T-Mobile could be forced to sell part of their spectrum and Amazon could be a buyer.
Investors Think That The Deal Will Close
While the concern of the FCC about the technical aspects of the merger, the Justice Department and the State Attorney General are more concerned about how the deal will reduce competition and lead to higher prices. States say that if the merger gets approved, T-Mobile-Sprint would have a greater market share among retail consumers than Verizon and AT & T. In some markets, the combined company would control more than 50% of the wireless business sector.
Bloomberg also notes that investors are not sure if the deal will be closed. If the deal is approved, each Sprint shareholder will receive .10256 T-Mobile shares for each Sprint share. So, with T-Mobile (TMUS) currently trading at $ 75.35, Sprint (S) shares should be closer to $7.73 compared to the current $6.58 if investors were 100% sure that agreement would have been made. The difference between the value of the deal and the price of the Sprint share, $1.15, is almost double what it was at its lowest point last month. But like everything related to this agreement, the data is not so truncated and dry; At the end of April, the spread was over $2.00, indicating a high degree of skepticism regarding the approval of the deal.
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