Justice Department antitrust enforcement staff have told T-Mobile US Inc. TMUS 0.42% and Sprint Corp. S 2.21% 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.
The nation’s third- and fourth-biggest carriers by subscribers are facing challenges on several fronts, but their most immediate hurdle comes from the Justice Department’s antitrust division, which is considering whether the deal would present an unacceptable threat to competition.
In a meeting earlier this month, Justice Department staff members laid out their concerns with the all-stock deal and questioned the companies’ arguments that the combination would produce important efficiencies for the merged firm, the people said.
Reservations voiced by Justice Department staff workers aren’t necessarily the last word on a merger, as department leadership also will have an opportunity to weigh in and make the final decision.
T-Mobile’s proposal to Sprint was the culmination of years of on-again, off-again talks between the rivals, which are seeking scale in a mature U.S. market dominated by Verizon Communications Inc. and AT&T Inc. The smaller companies tried more than once to strike a deal only to see the agreement fall apart over terms or fears that the Justice Department would object.
Wireless operators have tried different combinations to shrink the number of national U.S. players from four providers down to three, but so far they have all been foiled. The Obama administration blocked AT&T’s 2011 bid for T-Mobile, saying the market was too concentrated.
T-Mobile and Sprint executives last year decided to make their case to the Trump administration, saying that without a merger they risked falling behind Verizon and AT&T as the industry upgrades to fifth-generation networks. Combining the smaller companies would arm them with a swath of wireless-spectrum licenses considered ideal for 5G.
T-Mobile Chief Executive John Legere responded to The Wall Street article in a tweet, saying “The premise of this story, as summarized in the first paragraph, is simply untrue. Out of respect for the process, we have no further comment.”
A Sprint spokesman had no immediate comment and a Justice Department spokesman didn’t respond to requests for comment.
Several state attorneys general also are reviewing the deal. Some state antitrust officials have expressed concerns similar to those from the Justice Department and have prepared to sue the companies independently if federal officials don’t join them in challenging the merger, according to a person familiar with the matter.
Public filings show the Federal Communications Commission is also prodding the companies for more data about several elements of their proposed combination, including the calculated cost savings and how they would use wireless infrastructure to provide home broadband service.
The different groups of government officials are operating on similar timelines and a final decision is still likely several weeks away, people familiar with the matter said.
Discussions between the companies and government officials are continuing. T-Mobile and Sprint could offer concessions, such as assets sales, to try to address the government’s concerns.
T-Mobile and Sprint unveiled their merger plans nearly a year ago. Their chiefs have said the move will give the combined firm the heft and resources needed to compete with Verizon and AT&T and build 5G networks faster than the bigger players.
T-Mobile’s executives have said they are still on schedule to close the deal before July. The target date has slipped since late last year, when they privately planned for a decision as soon as April, according to people familiar with the matter.
Shares of Sprint are trading at a roughly 20% discount to the price implied by the all-stock deal, signaling Wall Street doubts about the combination’s chances. Shares of T-Mobile closed Tuesday at $74.10, while Sprint closed at $6.01.
The deal cleared an important hurdle in December by winning approval from the Committee on Foreign Investment in the U.S. and from Team Telecom, two national-security groups that review transactions involving foreign owners. T-Mobile is mostly owned by Germany’s biggest carrier, Deutsche Telekom AG. Sprint is mostly owned by SoftBank Group Corp. of Japan. The review slowed down this year during a federal government shutdown. U.S. officials also sought more information from the companies about details of their combination strategy, adding several months to the process.
T-Mobile Technology Chief Neville Ray addressed an industry conference said after the company’s April meeting at the Justice Department that executives remained “very optimistic” they would win government approval. “We are in deep and strong and positive negotiation and discussion,” Mr. Ray said at the time. “We will answer every question that is put in front of us.”
While T-Mobile has continued to add subscribers at a healthy clip, Sprint has added fewer customers and struggled with heavy debt.
The company said in a Monday FCC filing that its current performance would be unsustainable without the merger due to weak network infrastructure and a customer base prone to leave in search of better deals.
“Sprint is in a very difficult situation that is only getting worse,” the company said.
Write to Drew FitzGerald at andrew.fitzgerald@wsj.com and Brent Kendall at brent.kendall@wsj.com
https://www.wsj.com/articles/t-mobile-sprint-deal-runs-into-resistance-from-doj-antitrust-staff-11555446461
2019-04-16 22:33:00Z
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