With T-Mobile (TMUS) receiving FCC Chairman Ajit Pai’s endorsement Monday for the Sprint merger, it likely signals official Commission approval in the coming weeks, according to Jennifer Fritzsche, senior Analyst with Wells Fargo Securities.
“This is still a very fluid situation,” Fritzsche said, “with Bloomberg reporting the concessions may not be enough for DoJ approval – although the FCC and DoJ are typically aligned on telecom-related merger decisions. But if the deal is approved in its current form, what would the ‘New T-Mobile’ mean for other companies under our coverage?”
Fritzsche said her firm is not recommending the towers right now, as “three strong customers is better than four (with one in much financial distress).” If the deal doesn’t get approved, she believes that TMUS (a strong contributor to recent tower growth) could go into a pause mode as it evaluates additional spectrum needs (which it would require by TMUS’s own admission). If the merger is approved, Fritzsche feels there would be much fallow spectrum that still needs to be built out.
“In our view,” she said, “most of the beneficiaries of the 600 MHz deployment will be the private tower cos and builders, but the 2.5 GHz build likely will be additive to the current TMUS and Sprint towers (most of which are now owned by CCI).”
DOJ approval is likely, according to Colby Synesael of Cowen, but State AGs still remain a risk. “S arb spread is now ~9 percent as investors seem to be aligning FCC approval w/ deal approval while we remain more cautious. We continue to like TMUS w/ or without a deal,” Synesael said.
According to Jonathan Chaplin with New Street Research, it is very likely that the deal will be approved. He expects the DOJ to be in agreement with the FCC.
“The state AGs may still sue; however, the odds of them winning have fallen and so their appetite to sue should too,” he said. “In this note we review the impact of the concessions announced so far on the value of both stocks. We also touch on implications for other companies we cover. Maintain Buy ratings for T-Mobile and Sprint. We are adjusting our price targets for T-Mobile to $93 (+17%) and for Sprint to $8 (+5%) to reflect deal odds of 80% partly offset by impact of concessions.”
May 22, 2019