With a lawsuit filed by states seeking to block the $26.5 billion merger between T-Mobile Us Inc TMUS and Sprint Corp S set to go to trial Dec. 9, key questions remain for investors.
Bank of America Merrill Lynch analyst David Barden spelled out in a note to investors what they should look for ahead of the telecomm merger trial.
Will A Settlement Be Reached?
Whether the attorneys general of the 13 remaining states suing to block the merger have the will to strike a bargain remains a question.
"The most debated point, based on our conversations with investors, is not the strength of the states’ case against the deal (most agree it is strong), but rather the will of the states to see this through to litigation," Barden wrote in a note.
While some states may have been simply looking for concessions from the companies (and some have dropped out), the AGs leading the litigation, New York's Letitia James and California's Xavier Becerra, appear to have strong have anti-trust concerns about the potential post-merger landscape that incline them toward a trial, Barden said. A settlement right now looks unlikely.
The Department of Justice has tried and failed to disqualify the states' main attorney, and also is working to disqualify certain market evidence, leading Barden to suspect the companies are also anticipating a trial.
What If The Sprint, T-Mobile Merger Is Approved?
The companies have already reached agreements to settle concerns raised by the Federal Communications Commission and the Department of Justice. Those agreements will have a merged company divest Sprint's Boost Mobile wireless brand, and keep prices level for three years.
Dish Network Corp. DISH has agreed to acquire Sprint's prepaid business and spectrum, a deal that would make Dish the nation's fourth national wireless company. That's key because the government wants at least four competitors in the marketplace. Whether or not Dish would actually be a force in the mobile market could be an issue in whether or not the merger is approved.
Barden said the new T-Mobile would be focused first on integrating T-Mobile and Sprint networks, which are key to reaching synergy targets that need to be reached to avoid customer disruption that would create a business and stock overhang.
Another focus would be deploying Sprint’s 2.5GHz spectrum, which could put T-Mobile ahead in being first to full 5G, Barden said.
"Being the first to 5G would be a marketing advantage T-Mobile would clearly take advantage of," he wrote.
What If The Sprint, T-Mobile Deal Is Blocked?
While a blocked merger would likely cause the stock to fall on the disappointment, investor interest in a standalone T-Mobile would likely quickly rebound, Barden said.
"While not as interesting perhaps as the merger story, standalone T-Mobile would remain a solid growth and buyback investment," he wrote.
For Sprint, the failure question is more problematic.
Sprint is burning through cash and losing subscribers. Company officials have already said it can't compete on a standalone basis, hence the merger effort. Among the options that would remain for the company would be trying to sell its prized spectrum to its competitors and reset the business model, or going private and trying to recapitalize. Other options could include splitting into two companies, or selling out to other tangential players, such as a cable company.
Bank of America has removed its investment opinions on T-Mobile and Sprint. Both stocks dropped as the trading week began, with T-Mobile down 1.33% at $77.50 while Sprint was down 2.11% at $5.80.
Photo by Chris Potter via Wikimedia.
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