T-Mobile, Sprint counter report that merger deal is in trouble

Execs from T-Mobile and Sprint discuss merger
Sprint Executive Chairman Marcelo Claure (left) and T-Mobile CEO John Legere continue meetings with regulators in Washington, D.C. (T-Mobile)

T-Mobile CEO John Legere took to Twitter on Tuesday to say a Wall Street Journal story about the status of its merger with Sprint is “simply untrue.”

The tweet pointed to the first paragraph of the WSJ story, which says: “Justice Department antitrust enforcement staff have told T-Mobile US Inc. and Sprint Corp. that their planned merger is unlikely to be approved as currently structured, according to people familiar with the matter, casting doubt on the fate of the $26 billion deal.”

Legere said the company would have no further comment “out of respect for the process.”

Marcelo Claure, former CEO and executive chairman of the board of Sprint, mirrored Legere’s message with a tweet of his own, saying: “We continue to have discussions with regulators about our proposed merger with @TMobile. That process is ongoing and we have no further comment.”

Indeed, Claure also tweeted a picture of himself running past the White House and another tweet saying “Good morning from #WashingtonDC this is an important week.”

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Citing people familiar with the matter, the WSJ story reported that in a meeting earlier this month, Department of Justice staff members laid out their concerns about the deal and questioned the companies’ arguments that the combination would produce important efficiencies for the merged firm. The article also noted that reservations voiced by Justice Department staff lawyers aren’t necessarily the last word on a merger.

Shares of Sprint, at $5.67, were down 5.4% this morning, and shares of T-Mobile, at $71.69, were trading 3.25% down.

Earlier this month, analysts at MoffettNathanson Research lowered their odds for the deal to get approved, from 50/50 to 1 in 3, or 33%. They said the merits of the deal weren’t any different than they were when it was first proposed, but the politics have changed, and they referenced a Bloomberg report about states considering a lawsuit to block the deal on antitrust grounds.

The WSJ article said discussions between the companies and government officials are continuing and noted that T-Mobile and Sprint could offer concessions, such as asset sales, to try to address the government’s concerns.

In a note to investors this morning, New Street Research's policy division, led by adviser Blair Levin, spelled out four potential scenarios for investors to consider, concluding that it’s “highly unlikely” that the WSJ story is wrong and noting, among other things, that "it’s consistent with the institutional view of the DOJ staff that the wireless market needs four competitors" to have a competitive market.

“What to make of the Legere and Claure tweets? We acknowledge they know things we don’t. But it could also be that they are parsing the story in ways that don’t really challenge its accuracy. For example, Legere’s tweet may imply that the premise that the staff has the power to make a decision is wrong. Claure’s tweet may imply that it is inaccurate to imply that talks are not continuing. In any event, we believe the WSJ story is accurate, but that as it acknowledges, it is not the end of the story,” the New Street analysts wrote.  

“In short, we think the deal has met significant opposition, as expected, within the DOJ staff. We expect there to be further meetings in the near term to determine whether there are conditions that could ameliorate those concerns. We also expect the companies to accelerate their efforts to obtain support from those who rank above the staff,” the analysts concluded.