Will a Judge Approve T-Mobile and Sprint’s Merger?

In April 2018, T-Mobile (NYSE:TMUS) and Sprint (NYSE:S) announced an all-stock merger deal. This is the third time the two cellular companies are trying to merge. However, the deal is still not closed, as a number of state attorneys general are currently trying to block it. Recently, states suing to block the deal suggested that the federal government’s approval of it seemed premature.

California State Attorney General Xavier Becerra and New York State Attorney General Letitia James are leading the multistate court challenge. The states argue that the merger would reduce the number of major cellular companies in the US from four to three: AT&T (NYSE:T), Verizon, and the new T-Mobile. The states are also concerned that the new T-Mobile would increase wireless prices for consumers by eliminating the competition.

T-Mobile and Sprint merger trial

The antitrust trial for the case ended in December. Top executives from T-Mobile, Sprint, and Dish Network (NASDAQ:DISH) testified before US District Judge Victor Marrero in a Manhattan court. Marrero has scheduled closing arguments for the lawsuit on January 15. The court’s decision is likely to come next month.

According to a Bloomberg report on January 9, “States suing to block T-Mobile US Inc.’s proposed acquisition of Sprint Corp. urged the federal judge overseeing the landmark antitrust trial not to defer to the Trump administration’s approval of the $26.5 billion deal.”

As per Yahoo, the report added, “‘The federal government approved the merger with what appears to be only a cursory examination of the approval conditions,’ the states said, and the decision was ‘inconsistent’ with its past opposition to consolidation in the wireless market. The government had asked in a Dec. 20 filing that its approvals be given deference.”

Regulators approve T-Mobile and Sprint merger deal

In 2019, the US Department of Justice’s antitrust division and the Federal Communications Commission conditionally signed off on the merger deal. The regulators approved the deal after the two companies agreed to divest certain wireless assets to Dish Network to create a new wireless competitor. Dish would pay $1.4 billion for Sprint’s prepaid business and $3.6 billion for Sprint’s nationwide 800 MHz spectrum. T-Mobile and Sprint also promised to rapidly deploy a nationwide 5G wireless network.

However, the states argue that Dish can’t replace Sprint, as the satellite TV operator has no experience in the wireless industry. Additionally, Dish is expected to start out with 9 million wireless customers, while Sprint currently has 50 million wireless customers.

T-Mobile and Sprint believe that their combining will lead to increased competition. By merging the two networks, the new T-Mobile will have both more capacity and reduced expenses via the elimination of duplicate work. This scenario would lead to lower wireless prices for consumers.

T-Mobile and Sprint merger odds

Wall Street analysts are doubtful of the companies’ chance of winning. Cowen & Co. analyst Paul Gallant puts the odds of the district judge ruling in favor of the states at 60%, reports The Fly. In addition, Raymond James analyst Ric Prentiss has increased the odds of the merger deal getting blocked from 15% to 45%, according to FierceWireless.

According to Bloomberg, “The spread between T-Mobile’s offer price for Sprint and the trading price, an indication of the deal’s risk, swelled to an all-time high Thursday of $3.17 at 2:27 p.m. in New York.”

Growth projection

T-Mobile is likely to announce its detailed earnings report for the fourth quarter of 2019 in February. The telecom company has exceeded analysts’ earnings expectations in the last 15 quarters. Wall Street analysts expect the carrier’s top line to grow 3.2% YoY (year-over-year) to $11.8 billion in the quarter. Analysts also expect its fourth-quarter adjusted EPS to grow 12% YoY to $0.84.

Earlier this week, T-Mobile reported an unaudited preliminary report for its fourth quarter and 2019. The company reported 1.0 million postpaid phone net customer additions and nearly 77,000 prepaid net customer additions in the quarter. Read T-Mobile Stock Soars on Preliminary Q4 Results to learn more.

Stock performance

T-Mobile stock has risen 17.9% in the last 12 months. Meanwhile, the Dow Jones Industrial Average and the S&P 500 have risen nearly 20.6% and 26.1%, respectively. In comparison, AT&T stock has risen 28.9% in the last 12 months, while Sprint has fallen about 20.1%. Sprint stock is falling amid merger uncertainty.

T-Mobile stock closed trading at $79.81 on January 9, rising 0.49% from the previous trading session. On January 9, TMUS was trading 6.4% below its 52-week high of $85.22 and 21.7% above its 52-week low of $65.56. The average price target recommended by analysts is $91.05, a potential upside of about 14.1%.

Based on Thursday’s closing price, TMUS was trading as follows:

  • 3.3% above its 20-day moving average of $77.29.
  • 1.9% above its 50-day moving average of $78.32.
  • 1.4% above its 100-day moving average of $78.69.

T-Mobile has a 14-day relative strength index score of 65, which means that the stock is approaching the “overbought” zone. The stock’s 14-day MACD is 1.27, which indicates an upward trading pattern.

To learn more, read The Latest Odds of the T-Mobile–Sprint Merger Approval and T-Mobile Stock Soars after Analyst Upgrade.