In recent weeks, Sprint’s shares have been hammered. The share price has fallen by 40% since the beginning of the year, reflecting investors’ concerns about the long-term position of Sprint in the US wireless market. Not surprisingly, Sprint has been the most vocal opponent of the planned $39B acquisition of T-Mobile US by AT&T, which was announced in March 2011. Sprint argues that the deal would manifest itself in a loss of competition in the US wireless market if the fourth- and second-largest wireless carriers in the US merge (Sprint is No. 3). The US Department of Justice (DoJ) seems to share this concern and blocked the acquisition in August 2011 in order to preserve a vibrant and competitive marketplace.
Despite the DoJ’s opposition, most observers expected some form of compromise to emerge, even if it took a court fight to do so. Both AT&T and Deutsche Telekom (DT) reiterated their eagerness to pursue the deal as the DoJ announced its decision. However, in our view, Sprint’s challenging situation increases the likelihood that the deal will not go through as planned: Sprint looks weaker now than several months ago. Its announcement in October 2011 that it will take on additional debt to fund the rollout of its LTE network only increases liquidity concerns. This will sway the DOJ’s position further toward rejecting the deal for good in an effort to support a healthy US wireless market.