On Friday, Sprint (NYSE:S) and T-Mobile U.S. (NASDAQ:TMUS) stocks jumped higher on reports that the Department of Justice would give the green light to their merger. Sprint stock rallied toward $7. TMUS stock initially ripped higher too, although it’s cooled off already. Both stocks moved higher on Tuesday on news that Dish Network (NASDAQ:DISH) could be involved in the asset sale that’s needed to get the deal done.
Many investors are wondering what Sprint stock price and T-Mobile stock will do going forward.
The argument for a Sprint/T-Mobile tie-up is that the new entity will be better able to compete with Verizon (NYSE:VZ) and AT&T (NYSE:T). For ages, VZ and T have had a tight grip over the wireless sector. Because of their dominance, it’s easy to see why a stronger third player in the telecom space would benefit consumers. That said, one can see why going from four competitors to three is worrisome to regulators.
But the Justice Department wants to be more certain that the deal will benefit consumers. For that reason, Sprint is looking to offload its Boost Mobile prepaid business. There were rumors that Amazon (NASDAQ:AMZN) may be interested in Boost, which temporarily sank the stocks of wireless carriers like AT&T and Verizon. However, Boost now looks to be going to Dish rather than Amazon. Now that we’re on the cusp of a Sprint-T-Mobile deal, what’s likely to happen to the companies going forward?
Sprint and T-Mobile
While it’s hard to imagine a tie-up between S and TMUS hurting consumers, that doesn’t mean it’s been easy for them to get the deal approved. For instance, ten state attorneys general have opposed the deal, filing a lawsuit against it. That lawsuit should be headed to pretrial soon, where the plaintiffs will look to convince a judge to grant a temporary restraining order. If they succeed, the deal will be pushed back by another several months. Good grief.
However, that lawsuit could be scrapped if the Department of Justice gives the deal the green light, according to recent reports. To get that approval, S and T-Mobile will need to shed several assets that will allow a fourth competitor to emerge in the wireless carrier space. The duo has since approached Dish, Charter (NASDAQ:CHTR) and Altice USA (NYSE:ATUS) about buying their Boost Mobile business.
Current reports now suggest Dish is close to paying $6 billion for the assets that Sprint and TMUS need to unload to get their merger approved. Those assets are expected to include Boost Mobile, as well as spectrum.
At the time the deal was announced — now more than a year ago — it was valued at $26.5 billion. The all-stock transaction is based on pricing from April 2018, with 0.10256 shares of T-Mobile being swapped for each share of Sprint, or 9.75 shares of Sprint for each share of T-Mobile. At the time, it valued Sprint stock at $6.62 per share.
T-Mobile will be the name of the combined company if the deal is complete. T-Mobile parent company Deutsche Telekom will hold a 42% stake in the combined entity, while Sprint parent company SoftBank (OTCMKTS:SFTBY) will hold a 27% stake.
Trading Sprint Stock
Click to Enlarge
Based on each investor receiving .10256 shares of TMUS for every 9.75 shares of S stock they own, Sprint stock would currently be valued at around $7.70 per share, provided the deal goes through.
On the surface, that level is the point to which S stock can rise. That level is also above short-term range resistance near $7.20. Worth noting is that Sprint stock price is now over this level too, near $7.40, after the Dish news. On the downside, $6.60 has buoyed Sprint stock. However, make no mistake about this setup now: It is very much a binary event. Either the deal gets done or it doesn’t. If it does, S stock can instantly rise. If it doesn’t, Sprint stock will get hammered.
While investors can make a case for owning TMUS stock without a deal, Sprint really needs this acquisition to go through. Both companies want this deal to get done, but one of them really needs it, and that’s Sprint.
So while investors can map out upside and downside levels, they won’t matter. All that matters now is whether the deal gains approval. If it does, then the next consideration is T-Mobile’s share price. That will determine Sprint’s share price, since it’s an all-stock deal.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long T, AMZN.
