T-Mobile (TMUS) and Sprint (S) finally had their long-awaited wish come true after a federal judge gave the two telecom companies go ahead on Tuesday to merge, sending T-Mobile shares up 12%, and Sprint shares up 77.5% by the close of trading yesterday.
The merger that was supposed to happen 2 years ago after it was first announced, has faced a lot of opposition from other competing companies suggesting that it would encourage anti-competition.
Irrespective of the arguments brought forward against the merger by a group of state attorneys general, U.S. District Court Judge Victor Marrero demurred that to the contrary, T-Mobile’s “maverick” ways have historically forced “the two largest players in its industry to make numerous pro-consumer changes” to compete with it.
In the judge’s view, allowing the merger will in fact help “to continue T-Mobile’s undeniably successful business strategy for the foreseeable future.”
Other rivals AT&T (T) and Verizon (VZ), could either see this merger as a threat or a chance to exploit the situation and offer discounts to consumers who might jump ship from Sprint or T-Mobile. The situation is, however, still fluid and we are yet to see how the rivals will react to the big news.
T-Mobile and Sprint merger could still face some delays according to analysts
Analysts predict that the story behind T-Mobile and Sprint’s merger may not be over yet with a possibility of an appeal being filed by the state attorney generals. According to Nomura analyst Jeff Kvaal, “we expect the state AGs to appeal.”
RBC Capital analyst Jonathan Atkin also noted that such an appeal, if filed, could delay the closing of the merger by “an additional 4-5” months — potentially delaying closure until September 2020.
Meanwhile, T-Mobile COO Mike Sievert has promised to push forward and ensure the completion of his company’s acquisition of Sprint by April 1 after the Department of Justice and Federal Communications Commission had given their deal a blessing.
The merger could be a good fit for both companies marking them as strong rivals against other telecom giants, meaning more subscribers, better network and broader distribution.
However, Sprint has had its share of disappointments with many consumer complaints directed at their poor services and to top it off, Judge Victor Marrero thinks the same way too. Based on the 173-page document, the judge calls out Sprint on several occasions.
Due in part to several questionable technological choices, Sprint’s network is poorer in quality than those of its competitors and its brand image is correspondingly poor. Sprint has also struggled financially, failing to earn net income for eleven straight years until 2017.
Sprint has struggled to retain the customers it initially attracted with its aggressive offers, due in large part to its underlying poor network quality.
Judge Marrero also feels that the company’s network is still lacking;
The mobile wireless network is the foundation of mobile wireless telecommunications services, and Sprint’s network and product offerings have been distinguished for years for poor operational quality and negative customer perception.
Putting aside what the judge thinks about the telecommunications industry, whether there is a delay or not, Kvaal believes T-Mobile/Sprint has the advantage at this point and puts the likelihood of the merger closing eventually at about 80%. (And accordingly, Kvaal raised his price target on T-Mobile stock today to $102 per share, implying there’s a further 8% upside to be gained.
Over the last three months, TMUS stock has received a whopping 8 Buy ratings and just 2 Hold ratings. As a result, the stock has a ‘Strong Buy’ analyst consensus rating.
In the longer term, though, Kvaal sees a merged T-Mobile/Sprint as a strong rival to the telecom giants, boasting “more subscribers, more spectrum, a better network, and broader distribution.”
And Dish? Isn’t T-Mobile supposed to give Dish access to its network as a condition of the DOJ and FCC signing off on this deal? Well, yes, it is, and Oppenheimer analyst Timothy Horan chimes in on this point to predict that Dish may partner with one or more cable companies to sell wireless service.
Still, Kvaal isn’t at all optimistic that Dish will be able to compete effectively in mobile. Neither, for that matter, is Atkin, who worries that Dish will have “to compete in a highly mature and competitive market fraught with execution risk and significant capital requirements.”
Heavily leveraged Dish may discover it’s bitten off more than it can chew.
Source: Yahoo Finance
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