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Deja Vu: T-Mobile's Sprint Merger May Be a No-Go Again

Tara Lachapelle
Deja Vu: T-Mobile's Sprint Merger May Be a No-Go Again

(Bloomberg Opinion) -- I hope T-mobile didn't already order a bunch of magenta T-shirts to hand out to the Sprint team. Their merger may be a no-go. 

The Justice Department told T-Mobile US Inc. and Sprint Corp. earlier this month that it's unlikely to approve their deal as it's currently structured, according to a Wall Street Journal report Tuesday afternoon. It’s especially bad news for Sprint, the weaker of the two businesses. Its shares plunged more than 8 percent in after-hours trading, while T-Mobile fell 5 percent. 

It’s been almost one year since T-Mobile agreed to buy Sprint, a transaction that values the no. 4 U.S. wireless carrier at $59 billion, including debt (Sprint has lots of it). But this merger has been years in the making, and regulators have disliked it for just as long. If the Justice Department does move to block the companies from combining, it will be the final nail in this would-be deal’s coffin, and T-Mobile and Sprint will go their separate ways in search of new merger partners. 

There are so many facets of the merger plan that could be picked apart and studied to weigh the pros and cons. There’s the immense synergies and the rescue line it would offer a beleaguered Sprint; but there’s also the potential negative impact on low-income customers of combining their prepaid brands, and the likelihood that this huge deal may lead to higher prices and affect rural markets. The companies have also emphasized that merging would help them build a nationwide 5G wireless network that aids the U.S. in its perceived race against China, a talking point sure to intrigue President Donald Trump, but not necessarily antitrust officials.   

For the clearest evidence that allowing T-Mobile and Sprint to merge may be harmful to consumers, look no further than their rivals’ stock prices. I noted late last month that, when a series of press reports signaled the companies were having difficulty getting their deal across the finish line, shares of Verizon Communications Inc. and AT&T Inc. fell right alongside T-Mobile and Sprint. It showed that investors expect the merger to be beneficial to the industry as a whole in terms of renewed pricing power. Guess how Verizon and AT&T’s stocks responded to Tuesday’s news? They both initially fell. 

Sprint remains a financially challenged company with a bruised brand in need of much investment, which the Overland Park, Kansas-based company may struggle to make. Even so, T-Mobile may just have to find some other town to paint pink.

To contact the author of this story: Tara Lachapelle at tlachapelle@bloomberg.net

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.

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