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The T-Mobile Sprint Merger Antitrust Trial Explained

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On Wednesday, Dish Network (DISH) Chair Charlie Ergen testified that on June 10, the US Department of Justice’s antitrust chief, Makan Delrahim, told him to ask a senator to talk with the FCC (Federal Communications Commission) about supporting the T-Mobile (TMUS) and Sprint (S) merger deal. Ergen revealed that he had asked Senator Cory Gardner of Colorado to speak with FCC Chair Ajit Pai.

According to a Reuters report on December 19, “It is unusual for a Justice Department official to suggest to a company that it use access to U.S. senators to lobby another federal government agency.”

The states who opposed the merger filed a case the next day. Pai’s spokesperson declined to comment on the matter.

According to a CNET report on December 18, Ergen revealed that “his new wireless service will be priced lower than where the marketplace is today, adding that he’s ‘looking forward’ to competing with the new T-Mobile that will be created.”

The report added, “As Dish builds out its network, Ergen said, the first city will go live in 2020, and its customers will be migrated from T-Mobile’s network…As for the funds to build out a network, Ergen revealed that the company has received ‘highly confident’ letters from Morgan Stanley, JP Morgan and Deutsche Bank that said they could each provide $10 billion to help fund the building of the new network.”

T-Mobile and Sprint face merger lawsuit

The T-Mobile Sprint merger deal is currently facing an antitrust trial in New York. About 14 Democratic state attorneys general have filed a lawsuit to block the proposed $26 billion merger deal. The multistate lawsuit is led by the New York and California attorneys general. The plaintiffs argue that combining T-Mobile and Sprint would reduce choices for wireless consumers, resulting in higher prices. In addition, the states believe that the merger transaction would harm innovation and jobs in the US wireless industry. The trial will likely run until Saturday. US Judge Victor Marrero is likely to announce his final decision in February 2020.

This is the third time in the past five years that wireless competitors T-Mobile and Sprint have attempted the combination. Merger discussions collapsed in 2017 due to a tug-of-war over the ownership of the combined company. Meanwhile, the first round of merger talks in 2014 ended due to antitrust issues.

However, both the third- and fourth-largest wireless service providers in the US have a common objective. They want to come closer to top rivals such as AT&T (T). In the third quarter, T-Mobile and AT&T gained 754,000 and 101,000 postpaid phone net customers, respectively. Meanwhile, Sprint lost 91,000 postpaid phone net customers.

T-Mobile and Sprint argue that by teaming up, the combined company could rapidly deploy a nationwide 5G network and cut prices for wireless consumers.

Regulators approve T-Mobile Sprint merger deal

In July, the US Department of Justice approved the merger deal between T-Mobile and Sprint. However, the deal was still conditional on the approval of the FCC, which officially came in November. Federal regulators approved the deal after the carriers agreed to divest certain wireless assets to pay-TV operator Dish. The proposed new T-Mobile committed to deploying a nationwide 5G network. Dish is expected to be a viable competitor to the top wireless service providers.

However, the plaintiffs argue that Dish can’t replace Sprint, as it hasn’t yet deployed a wireless network using the airwaves it already owns.

T-Mobile’s valuation

Analysts expect T-Mobile’s revenue to rise 3.8% in 2019 to $45.0 billion compared to 6.7% growth the previous year. Its sales will likely increase 5.2% in 2020 to $47.3 billion. Analysts also expect its adjusted EPS to rise 18.2% in 2019 compared to 24.0% growth in 2018. However, its earnings will likely rise 20.4% in 2020.

T-Mobile stock has a PE ratio of 16.16x and an enterprise value-to-revenue ratio of 2.0x for 2020.

Stock performance

T-Mobile stock closed 1.2% higher on Thursday and ended the trading day at $77.22. The stock was trading 9.4% below its 52-week high of $85.22 and 28.8% above its 52-week low of $59.96.

At its closing price on Thursday, T-Mobile’s market cap stood at $66.1 billion. It has reported returns of 3.1% in the trailing five days and 0.1% in the trailing month. The stock has gained 19% in the trailing 12 months.

Based on T-Mobile’s closing price on Thursday, the stock was trading 0.3% above its 20-day moving average of $76.96. The stock was also trading 2.2% and 1.8% below its 50-day and 100-day moving averages of $78.98 and $78.62, respectively. The stock’s 14-day relative strength index score of 50 signified that it was neither overbought nor oversold.

T-Mobile stock has risen about 21.4% YTD (year-to-date). T-Mobile posted mixed earnings results in the third quarter. The wireless carrier missed its consensus revenue estimate but beat its earnings estimate. It posted adjusted EPS of $1.01 in the third quarter. The number beat analysts’ consensus expectation of $0.96. The company’s revenue reached $11.1 billion in the third quarter. Its revenue missed analysts’ estimate of $11.3 billion and rose 2.0% year-over-year.

In comparison, Sprint, AT&T, and Dish have returned -9.1%, 36.4%, and 44%, respectively, YTD.

Read Sprint Ex-CEO Testifies in T-Mobile Merger Antitrust Trial and T-Mobile CEO Testifies in Sprint Merger Antitrust Trial to learn more. Also, check out Why Analysts Are Still Bullish on T-Mobile.

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