Why Is Sprint Smiling?
Yesterday, the Department of Justice sued in federal court to halt AT&T's (NYS: T) proposed purchase of T-Mobile USA from Deutsche Telekom. The government says that the takeover would violate U.S. antitrust laws.
A blocked merger could mean the difference between life and death for Sprint Nextel (NYS: S) . Sprint has been hanging on in third place far behind AT&T and Verizon (NYS: VZ) . If the acquisition does end up going through, I don't see how Sprint could survive. That deal would pare down the wireless field to two huge national carriers unlikely to be challenged by a much smaller competitor.
This suit comes a little over a month after the chairman of the Senate's Antitrust Subcommittee, Sen. Herb Kohl (D-Wis.), strongly expressed his opposition to the merger in a letter to the DOJ and to the Federal Communications Commission. He wrote, "[T]his acquisition ... would likely cause substantial harm to competition and consumers, would be contrary to antitrust law ... [and] should be blocked by your agencies."
A second life for Sprint
This suit may even re-raise the possibility of Sprint buying T-Mobile. That was a deal close to happening last March -- until AT&T trumped Sprint with an offer Deutsche Telekom couldn't refuse. Estimates of T-Mobile's value at the time were generously put at $15 to $20 billion by industry analysts. AT&T blew up Sprint's chances with its $39 billion bid. Goodbye, cash-strapped Sprint; hello, AT&T.
Not giving up
But the deal isn't dead yet. The courts could throw out the suit, or render a verdict in favor of AT&T. And don't forget that the FCC has yet to chime in with its opinion.
The company released a statement yesterday, saying, "We are surprised and disappointed by today's action, particularly since we have met repeatedly with the Department of Justice and there was no indication from the DOJ that this action was being contemplated."
AT&T can even put a dollar value on that disappointment. If the regulators squelch the deal, AT&T will have to pay Deutsche Telekom a $3 billion cash cancellation fee and give T-Mobile concessions -- including wireless spectrum -- that could total as much as $7 billion. AT&T has a lot of reasons to fight this one out.
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At the time this article was published Fool contributor Dan Radovsky owns shares of AT&T. Motley Fool newsletter services have recommended buying shares of AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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