One of the biggest news stories on Monday involved Sprint (NYSE: S). The $20 billion telecom giant saw its stock price surge in after-hours trading as rumors began to circulate that the company’s pending merger with T-Mobile (NASDAQ:TMUS) is expected to be approved by a federal judge soon.
The Wall Street Journal went on to report that the two companies, which are the third and fourth-largest U.S. carriers respectively, is expected to be cleared according to sources familiar with the matter. State attorneys have been working to stop the merger, arguing that its an antitrust issue and that without the competition between the two, customers could end up facing higher cellphone bills. The final decision is expected to be announced on Tuesday, with the parties involved having already been notified in regards to the ruling.
Over two years ago, the two companies agreed to a $26 billion all-stock merger, securing approval from federal antitrust officials back in 2019 when both Sprint and T-Mobile agreed to make various concessions to get the deal approved. While both companies have the right to renegotiate the terms of the deal should the court approve the merger, it doesn’t seem that this will likely be the case. Instead, the deal is expected to proceed as it originally was agreed upon should the ruling be positive.
Part of the reason why Sprint agreed to the merger is due to its struggles in recent years. The company has failed to retain customers, with its base shrinking while T-Mobile has seen its customer base grow over the same period. In an admission that’s rare for the CEO of a major company, Sprint’s CEO went on to admit that his company offers “an inferior product” that will end up leading to the company’s demise unless Sprint finds a potential buyer.
Shares of Sprint ended up surging by 68% in after-hours trading in response to the news, while T-Mobile’s stock ended up going up by a more modest 8%. Should the results be formally announced on Tuesday, it wouldn’t be surprising to see shares of these two companies jump even more. Most analysts are pretty optimistic about T-Mobile’s future prospects following this merger, with 16 of the 19 Wall Street experts covering the stock have a “buy” rating, while only 3 hold a “neutral” rating.
Sprint Company Profile
A decade of operational problems has considerably diminished Sprint’s position in the wireless industry. It is now the fourth-largest carrier in the United States, serving 26 million postpaid and 9 million prepaid phone customers directly and 13 million via wholesale channels. Over the past five years, the firm’s share of the postpaid phone market has declined about 1 percentage point to 12%, leaving it about three fourths the size of T-Mobile U.S., the next smallest carrier. About 4% of sales come from the wireline unit, which provides phone and data services to the wireless unit and external customers. Japanese firm Softbank took a 78% stake in Sprint through the purchase of existing Sprint shares and a $5 billion equity infusion in 2013; it has since increased its stake to 85%. – Warrior Trading News
