June 17, 2021

T-Mobile Breaks Out, Sprint Soars As Federal Judge Clears Merger

A U.S. federal judge on Tuesday cleared the T-Mobile US (TMUS) and Sprint (S) merger, creating a strong rival in 5G wireless services to Verizon Communications (VZ) and AT&T (T). T-Mobile stock broke out while Sprint stock skyrocketed.

Federal Judge Victor Marrero approved the T-Mobile and Sprint merger without conditions. The Department of Justice and Federal Communications Commission earlier approved the deal.

T-Mobile said it expects the merger to close “as early as April 1.” Here’s a look at challenges the combined company faces after the deal closes.

“I’m pleased with the district court’s decision. This transaction represents a unique opportunity to speed up the deployment of 5G throughout the United States, put critical mid-band spectrum to more productive use, and bring much faster mobile broadband to rural Americans,” FCC chairman Ajit Pai said in a written statement.

Several states led by New York and California aimed to block the merger with a lawsuit. They claim the merger will limit competition. The states could appeal Marrero’s decision.

T-Mobile Stock: Appeal By States On Ruling Unlikely
“We suspect the judge has written a decision in a way that will make it difficult for the states to win on appeal, nor otherwise give them an incentive to do so,” New Street Research analyst Blair Levin said in a report to clients.

T-Mobile and Sprint forged a side deal with satellite TV broadcaster Dish Network (DISH) to gain the Justice Department’s approval. Dish is expected to emerge as a new entrant in wireless services.

Before the merger closes, T-Mobile is expect to renegotiate terms of the deal.

“T-Mobile management has already indicated that it may seek an indemnification from Sprint against legal risks around the Lifeline program (where Sprint faces allegations of misconduct by the FCC),” Jefferies analyst Ulrich Rathe said in his note to clients.

Sprint Stock: Merger Deal Could Be Renegotiated
He added: “Beyond that, there is widespread market discussion that T-Mobile might renegotiate the TMUS-S exchange ratio, on the basis of Sprint’s share price development.”

Sprint stock soared 77.5% to close at 8.52 on the stock market today. T-Mobile stock surged 11.8% to 94.49, jumping above an entry point of 85.32.

Meanwhile, Dish stock gained 7.1% to 39.48.

Germany’s Deutsche Telekom (DTEGY) owns a majority stake in T-Mobile. Japan-based Softbank controls Sprint.

T-Mobile Stock: Mid-Band Spectrum Coveted for 5G
A combined T-Mobile and Sprint would own more radio spectrum than AT&T or Verizon, an important edge as 5G wireless services are rolled out.

“T-Mobile will finally have the deep block of 2.5 GHz mid-band spectrum they always coveted,” MoffettNatahanson analyst Craig Moffett said in a blog. “That will allow the new T-Mobile to mount the most credible threat either Verizon’s or AT&T’s network supremacy has ever faced. And one can expect a massive advertising campaign to announce the new T-Mobile.”

However, the new T-Mobile will face several years of network integration issues, analysts say.

AT&T stock fell 0.4% to 38.17. Verizon stock retreated 2.6% to 58.69.

The merger approval makes it less likely Verizon will buy spectrum owned by Dish. Verizon stock has an entry point of 62.32.

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