Wall Street Weighs the Chances of Sprint Deal With FCC and DOJ at Odds
Wall Street Weighs the Chances of Sprint Deal With FCC and DOJ at Odds
(Bloomberg) -- The Justice Department’s leaning against the union of T-Mobile US Inc. and Sprint Corp. drew in mixed reactions on Wall Street. While the fate of T-Mobile’s takeover remains in limbo, Raymond James says the Federal Communications Commission going public first with its official recommendation of approval “seems unusual to us and indicates the political nature of the process.”
As a presidential election draws near, a politically charged environment for a deal of this magnitude presents some concern for Raymond James analyst Ric Prentiss. He sees an an increased probability of a deal approval to 65% from 55%. But Baird still says the structural remedy of divesting Boost Mobile “may not go far enough for the DoJ, which has stressed the importance of structural remedies vs. behavioral.”
Shares in T-Mobile and Sprint are are down 0.7% and 1.7%, respectively.
Here’s what analysts are saying:
Baird, William Power
“Normally the FCC and DOJ are tightly aligned in telecom mergers, but rumors later in the day suggested that the DOJ may still have reservations to approving the deal,” Power wrote in a morning note. “If that’s correct, we suspect the structural remedy of divesting Boost in the FCC approval may not go far enough for the DOJ, which has stressed the importance of structural remedies vs. behavioral.”
“We’ve had concerns from day one that it could be difficult to prove that reducing the number of competitors is good for consumers.”
“Makan Delrahim, the DOJ’s antitrust head, has made it clear that he favors structural remedies over behavioral remedies. Much of the FCC approval appears to be predicated on behavioral remedies, with the primary structural move being the divestiture of Boost Mobile.”
Power says “the stakes couldn’t be any starker” for Masayoshi Son, the CEO and founder of SoftBank, which owns a majority stake in Sprint. “Approval is a homerun and rejection leaves Sprint, and its investment, in a difficult financial and competitive position.”
Buckingham Research, Matthew Harrigan
“The FCC will take weeks to write a formal order but it seems likely that Republican Pai will get his two fellow Republican commissioners to vote in favor and secure a majority.”
Harrigan notes that Pai, the FCC chairman,“incidentally has been very favorably disposed on the criticality of cable small cells in deploying 5G economically.”
“If Washington does still nix the merger it might alternatively heighten talk around other telecom merger activity prompted by controlling Sprint shareholder SoftBank looking for an alternative viability solution.”
“We do not think that Charter, and especially Comcast are at all interested in acquiring a U.S. mobile carrier, with further reinforcement off lackluster 1Q19 results for mobile carriers.”
RBC Capital, Jonathan Atkin
Atkin, after speaking with a telecom legal expert about outcomes, notes that “industry sentiment appears to be that Chairman Pai may have been pressured to accomplish something specifically within mid-band spectrum.”
The firm understands that a court process initiated by either the Justice Department or the state attorneys general could take approximately nine to 12 months in order to resolve.
Atkin says “investor sentiment about the DoJ’s head of antitrust Makan Delrahim is split, with some believing that he will ultimately side with FCC Chairman Pai, while others believe that he will challenge the deal as there is precedent.”
Raymond James, Ric Prentiss
Prentiss anticipates that “it will be many years before the industry is as economically rational as some investors believe this deal signals.”
“We think it is important to note that while the FCC was the first to go public with its official recommendation on the deal, that seems unusual to us and indicates the political nature of the process.”
"We are also cautious on how the deal will be handled in a politically charged environment as we head into the next presidential election and as a result, we are increasing our probability of deal approval from 55% to 65%."
“We believe the ability to extract new structural solutions from the deal that do not exist under the current competitive framework is very different and could fit the FCC narrative of pushing more rural facilities and broadband.”
--With assistance from Joshua Fineman.
To contact the reporter on this story: Kamaron Leach in New York at kleach6@bloomberg.net
To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Jennifer Bissell-Linsk, Morwenna Coniam
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