T-Mobile wrangles with California over merger

California
T-Mobile closed its merger with Sprint without a final vote by the California PUC, which says it can't merge operations in the state until a final decision is issued. (Pixabay)

T-Mobile announced the closure of its merger with Sprint on Wednesday, but the same day, the California Public Utilities Commission (CPUC) said the companies could not begin merging their California operations until after the CPUC issues a final decision.

While the CPUC issued a proposal on March 11 recommending approval with conditions, the CPUC hasn’t yet voted on the proposal; that’s still scheduled for April 16.

CPUC Commissioner Clifford Rechtschaffen, a former senior adviser to ex-California Governor Jerry Brown, issued the letter to the companies in response to a March 31 letter from T-Mobile's then-President and COO Michael Sievert. Sievert, now the CEO, had informed the CPUC on March 31 that they intended to close the merger on April 1.

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Bloomberg reported earlier this week that a group of banks were formally notified on Monday that they needed to make more than $20 billion available on April 1 so that the companies could close the deal after the COVID-19 outbreak disrupted plans to sell the debt to third-party investors.

U.S. District Judge Timothy Kelly signed off on the deal on Wednesday, ending the last regulatory hurdle on a national basis.

RELATED: T-Mobile/Sprint merger nears finish line

Sievert’s letter to the CPUC made it clear that the companies couldn’t wait any longer to consummate the merger.

“The COVID-19 crisis has created unprecedented uncertainty and risk in the financial markets, including the debt markets that are critical for us to secure the required financing for the merger and our 5G network build-out,” Sievert wrote. “The market for investment grade long-term debt financing, upon which our longstanding plans relied, has witnessed unprecedented upheaval in recent weeks. As a result, we are forced to rely on short-term bridge financing that was secured from a group of lenders under an existing conditional commitment.”

He added, “Right now, as I write this, we are fortunate that the banks are still prepared to provide bridge financing for an April 1 close. With the continuing turmoil in the financial markets, however, there are no assurances that the banks will continue to be able to fund the transaction if the closing is delayed any further. In short, if we do not close the transaction on April 1, it is conceivable that we may never be able to do so.”

T-Mobile did not immediately respond to Fierce’s inquiry about the status of the merger in California.

In the “cautionary statement” part of T-Mobile’s press release announcing the merger closure, the company acknowledged the many factors that could cause “actual plans and results to differ materially” from those expressed or implied, including  “litigation or actions that may arise from T-Mobile’s consummation of the business combination during the pendency of the California Public Utility Commission’s review of the business combination.”

RELATED: It’s official: T-Mobile closes Sprint merger, Sievert takes over

Steve Blum, president of the wireless consultancy Tellus Venture Associates, wrote in his blog on Thursday that there’s good reason to believe the two companies will effectively ignore the order. Sievert told Rechtschaffen and CPUC administrative law judge Karl Bemesderfer that they lack jurisdiction over the merger, and they would close it regardless. T-Mobile also has argued that it believes the Federal Communications Commission (FCC) has the exclusive authority to approve wireless transactions.

Blum said what’s certain to follow is litigation, with the California dispute requiring settlement in a federal court.

Meanwhile, the Communications Workers of America (CWA) is urging (PDF) the CPUC to revise its proposed decision to include conditions to mitigate the negative effects on employees, including requiring that no T-Mobile or Sprint employee, including those of dealers and contractors, loses a job or wages as a result of the transaction.

CWA’s analysis showed that 28% of stores in California would close from the merger, eliminating more than 3,000 jobs, as more than 1,000 postpaid wireless corporate and authorized retail stores have substantial geographic overlap between Sprint and T-Mobile.

For prepaid retail job losses, CWA initially estimated the merger would result in closing 545 Metro and Boost Mobile stores. Neither T-Mobile nor Dish Network made any commitments to maintain employment levels in prepaid operations, CWA said in its filing.

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