T-Mobile’s attempt to buy Sprint and close the deal faced another setback on Friday when a federal judge extended his Tunney Act review of the U.S. Department of Justice (DoJ) settlement into mid-February, according to analysts.
“We had initially expected this routine review to end in mid-November. Now it might not conclude until after Judge Victor Marrero’s decision in the State AG case, thereby delaying T-Mobile’s ability to close the deal,” wrote LightShed Partners analysts Walter Piecyk and Joe Galone in an investment note. “This generates additional uncertainty for investors and could further widen the ratio between T-Mobile and Sprint’s stock.”
Washington, D.C.-based Judge Timothy Kelly, who is assessing the DoJ’s approval of the merger, on Friday said he would consider friend-of-the-court briefs on the proposed transaction. The briefs must be limited to 20 pages and filed by January 24, with the parties responding by February 7.
Separately, the judge also approved Theodore Ullyot, a former Facebook general counsel, as the monitoring trustee to oversee the merger and divestiture process if it’s allowed to go forward, Reuters reported.
The Tunney Act review comes after calls were made last year questioning the DoJ’s conditional approval of T-Mobile’s acquisition of Sprint. Under the Tunney Act of 1974, a court must make an independent determination that the remedy the DoJ settled for is in the public interest.
Starting a new comment period for the Tunney Act review is not a good sign, but it’s still not the worst-case scenario, according to the LightShed analysts, who think it’s unlikely Judge Kelly will conduct a full evidentiary hearing. “T-Mobile likely hopes that the Judge’s willingness to listen to those contesting the deal will not extend into more testimony in yet another court,” the analysts wrote. “That could end up preventing T-Mobile from quickly closing the deal if they were to achieve a favorable ruling in the State AG case. More delays could enable the States time to appeal.”
U.S. District Court Judge Victor Marrero is overseeing the case where more than a dozen state Attorneys General (AGs) are suing to block the deal. Closing arguments will be made on Wednesday.
Judge Marrero could issue his decision in February, but analysts at New Street Research said they would not be surprised to see the judge rule on the Tunney Act proceeding before Judge Marrero rules on the trial, as the Tunney Act judge will be writing based on a much smaller record.
“We expect the judge in the Tunney Act proceeding, if he goes first, to largely uphold the DOJ consent decree,” wrote New Street’s Blair Levin in a weekend note to investors. “As the Tunney Act standard and precedent is much lower, we don’t see it as having much of an impact on the trial judge’s decision, which will also almost certainly be largely written by the time any Tunney Act decision is published.”
While New Street analysts still believe the states are likely to win on issues related to the core deal—and their belief was reinforced after they reviewed a final set of filings last week—LightShed analysts note that a ruling in favor of the AGs would be “remarkable,” given the arguments that they observed over the two-week trial and because it would effectively reverse the work of 40 DoJ staffers, 54 FCC staffers and the approval of two federal agencies.
New Street’s Levin said this week's final arguments will provide better evidence on the likely direction of the court than the recent filings, but having said that, “we think the combination of the filings causes us to slightly increase the odds of the states winning.”
That’s in part because while both sides did well in distilling the facts in a way that the judge could rule either way, “the filings suggest that states have the stronger case based on the legal precedent cited," Levin wrote. "Not only did the states have significantly more precedent on their side, their precedents were more on point. To somewhat oversimplify, but nonetheless express a consistent sense we had while reading the filings, the precedents the states cited appear to argue the judge really should rule the states’ way, while the companies’ precedents appear to only suggest the judge could rule their way.”