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Sprint sinks as regulatory uncertainty weighs on its T-Mobile merger (S, TMUS)

T-Mobile and Sprint are merging, with the combined company valued at $146 billion. Current T-Mobile CEO, John Legere, will serve in that same role for the merged entity.

  • Current T-Mobile US CEO John Legere retain his role at the combined company, which will keep the T-Mobile name.

Shares of Sprint fell as much as 12% in early trading Monday amid growing concern the wireless carrier's proposed its merger with T-Mobile in a deal that values the combined company at $146 billion may not pass regulatory scrutiny.

T-Mobile USA CEO John Legere made the announcement by tweeting a seven-minute video breaking down the merger, while also including a link to a website further explaining the combination. Germany's Deutsche Telekom owns two-thirds of T-Mobile, and will control the newly formed entity.

The announcement on Sunday marks the culmination of four years of on-again, off-again discussions between T-Mobile and Sprint — and was the third time the two rivals had tried to merge.

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With 127 million customers between them, the two newly teamed companies are expected to compete directly with Verizon— the nation's number one carrier — and second-place AT&T. That's where the concern comes in.

For evidence that the deal which will combine the third- and fourth-largest US wireless carriers, is expected to come under serious scrutiny from antitrust regulators that, one need not look further than how fervently theTrump administration has opposed AT&T's proposed mega-acquisition of Time Warner.

In November, the US Department of Justice sued to block AT&T's proposed $84.5 billion takeover of the cable giant. President Trump himself said on the campaign trail in October 2016 that such deals would result in "too much concentration in the hands of too few," and "deals like this destroy democracy."

However, Sprint and T-Mobile face a different challenge. While AT&T's proposed merger was a so-called "vertical" deal, in that the two firms aren't direct competitors and the new company would be vertically integrated to combined film/TV production with distribution, T-Mobile and Sprint are direct competitors and consumers will have one less competitive choice if the deal goes through.

"I think it's very hard to imagine DOJ just giving this deal a pass, given how much it would increase concentration in key segments of the wireless market," Gene Kimmelman, former DOJ official and CEO of Public Knowledge,told Axios.

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T-Mobile and Sprint's proposed deal involves T-Mobile exchanging 9.75 Sprint shares per unit of T-Mobile. Deutsche Telekom will own 42% of the combined company, while SoftBank — which controls 85% of Sprint — will own 27%. The remaining 31% will be held by the public.

Sprint's stock has surged 26% since the Wall Street Journal reported on April 10 that the two companies had rekindled merger talks. T-Mobile's stock has risen 8% over the same period.

The all-stock transaction values Sprint at 0.10256 per T-Mobile share, or $6.62 a share, based on T-Mobile's last closing price. That valued Sprint at around $26 billion. T-Mobile had a market value of $55 billion as of Friday's close, and the two companies have roughly $60 billion of combined debt.

Shares of Sprint are up 9% since the beginning of 2018, while T-Mobile is flat year-to-date.

Joe Ciolli contributed to this report.

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