Will The Sprint T-Mobile Merger Affect Your Portfolio?

Sprint T-Mobile Merger: A merger between giants Sprint and T-Mobile seems to make sense at first glance. After all, cell phones are practically everywhere, including many investment portfolios.

Investing in mobile phone operators can be profitable – five billion smartphones are in use around the world, which is four times the number of computers online, and demand, as well as usage per person, is only going up.

That’s not to say that investing in any telecommunications stock is a sure win – there is always a risk – but mobile operators do have the potential to produce a return. The challenge is that competition amongst these companies is fierce.

They fight over everything. Price is a constant concern. Some subscribers will change carriers for a relatively small price difference, so they try to lock their customers down with subscriber agreements.

When those aren’t enough on their own, mobile service providers offer incentives, like free phones or free HBO – and that’s not all.

These companies don’t just compete over subscribers. They fight over bandwidth and spectrum. To get the coverage that they need, many larger mobile operators acquire smaller ones and gobble up their spectrum or bid on new blocks of spectrum. All of these activities take some serious capital and that tends to translate to significant debt.

Being profitable on top of all of these factors is challenging. So why not scoop up an arch competitor and side-step future business wars with them?

Sprint T-Mobile Merger: How To Win The Mobile War

Sprint [NYSE: S] is one example of a mobile operator. It offers a variety of wireless and wireline solutions.

Sprint’s wireless offerings are what you would expect – a mix of postpaid plans for individuals and businesses as well as some prepaid options. The wireline products involve long-distance communications, Voice over Internet Protocol (VoIP), and Datalink.

Sprint is currently under contract to be acquired by T-Mobile [NASDAQ: TMUS]. In 2018, T-Mobile [NASDAQ: TMUS] offered to buy Sprint [NYSE: S] in an all-stock transaction, and they agreed. In July 2019, the Justice Department approved the deal. It was valued at $26.5 billion.

T-Mobile and Sprint argued that the acquisition would allow them to compete more effectively with their larger rivals AT&T and Verizon. In particular, their merger would give them the resources to invest in 5G technology, which is something they would have been virtually unable to do without combining forces.

The Justice Department gave their nod of approval after both companies agreed to sell off parts of their businesses. Dish network is going to buy up those assets.

T-Mobile Sprint Merger Risks & Deal Date

For now, you should know that T-Mobile’s acquisition of Sprint [NYSE: S] could still tank.

More than a dozen states and DC are suing to block the deal. Texas joined the fight on August 1, 2019, and more could follow. The trial starts on December 9, 2019.

Aside from the courts disallowing the deal to happen, the delay puts a serious wrench the works.

T-Mobile [NASDAQ: TMUS] is the acquiring company, so it can (fairly) easily continue on as it has been – business as usual. However, Sprint is in limbo. It can’t attract talent because it doesn’t know how long those positions will last – those new hires could be fired if the deal goes through.

It also cannot make investments in its future because that would change its financial profile and possibly affect the deal if it could attract funding at all.

The company has certain contractual restrictions too. Then, there is Dish. That company also complicates matters. The longer the deal is delayed, the more that Dish may want to walk away and pursue a different, less turbulent direction or otherwise change gears.

Will T-Mobile Stock Rise On Sprint Merger Deal?

T-Mobile [NASDAQ: TMUS] is obviously in better straits, but still in limbo while its acquisition deal is finalized.

At the end of FY2018, the company had almost 80 million customers. In addition to the Sprint [NYSE: S] subscribers that would get absorbed by the deal, T-Mobile also acquired Layer3 TV in 2018.

These efforts are designed to help T-Mobile sweeten its offerings to its subscribers and rival its competitors who already have some involvement in video.

At the end of FY2018, roughly 65% of T-Mobile’s business was in postpaid customers with 30% in prepaid and 5% in other services, including wholesale, roaming, and so on.

In general, T-Mobile customers fall under prepaid or postpaid depending on their credit profiles. Customers with the best credit have the option of joining a program called JUMP, which lets them lease or finance devices.

T-Mobile [NASDAQ: TMUS] has been working to expand its network. As of December 31, 2018, the company owned around 110 MHz of spectrum and another 264 MHz that spans 110 million POPs (Points of Presence). The company has been working on building its 5G offerings and is forecasted to be able to offer that level of coverage nationwide by the end of 2019 per its 2018 annual report.

Sprint T-Mobile Merger Status: The Bottom Line

Investing in companies going through a merger is risky. It is possible to make money on an investment during this time, but you need to understand that with which you are working.

The price the companies agree to and the price of the acquired company when the deal goes through can sometimes be very different.

If you buy in at the right time, you could see a solid return. However, there is a downside risk and it is even bigger than your potential for ROI. If the deal falls through, the share price of the would-be acquired stock may go down.

Similarly, if you plan to invest in the acquiring company, you should know that the share price could move significantly depending on what happens with the deal in question.

Again, you can make money, but nothing is guaranteed. If you decide to invest, pay attention to your holding. You may also want to consider some type of arbitrage to hedge your bets.