T-Mobile and Sprint Tumble on Landmark 5G Merger Announcement

T-Mobile US Inc. (TMUS, Financial) and Sprint Corp. (S, Financial) announced on Sunday that the companies reached a definitive merger agreement in which T-Mobile will acquire Sprint in an all-stock transaction. Despite this, both companies traded lower on Monday on fears that the merger will not pass antitrust laws.

Transaction details

According to the announcement, Belleville, Washington-based T-Mobile will acquire Sprint’s shares at a “fixed exchange ratio” equivalent to 9.75 Sprint shares per T-Mobile share. The combined company represents a total implied enterprise value of $146 billion.

Deutsche Telekom AG (XTER:DTE, Financial) and SoftBank Group Corp. (TSE:9984, Financial) are expected to hold approximately 42% and 27% of diluted economic ownership of the combined company. The board of directors, which have approved the transaction, will include 14 directors, including T-Mobile CEO John Legere. The transaction is expected to close in the first half of 2019, subject to the necessary regulatory approvals.

Companies launch ‘AllFor5G’ initiative

Legere said key initiatives for the Sprint merger are to “create a fierce competitor” in the telecommunication services sector and give consumers and business a company “with the disruptive culture and capabilities to force positive change on [the consumers’] behalf.” Sprint CEO Marcelo Claure mentioned on the conference call that “it is time to come together and turbo-charge the ‘Un-Carrier’,” T-Mobile’s marketing campaign from 2013.

Legere and Claure stressed it is “critically important” for the U.S. to expand in 5G. Claure said going from 4G to 5G is like “going from black and white television to color television” and that only the combination of Sprint and T-Mobile has the network capabilities to provide a deep 5G network in the first years of the innovation cycle. According to the CEOs, the combined T-Mobile expects to produce over $6 billion in “expected run rate synergies.”

Antitrust concerns sink share prices

At approximately 1:15 p.m. on Monday, T-Mobile and Sprint traded approximately 7.3% and 15% lower from their respective previous closes on antitrust fears.

CNBC columnist Berkeley Lovelace Jr. said the merger is likely to “face stiff scrutiny” form antitrust regulations like the U.S. Department of Justice, who has attempted to block the merger between AT&T Inc. (T) and Time Warner Inc. (TWX). Dominic Chu said in a separate CNBC video that while the Department of Justice might not disapprove the $84.5 billion merger, the government still urges for “structural remedies.”

See also

GuruFocus launched detailed industry overview pages that discuss the median value for various valuation and quality ratios.

Disclosure: No positions.