After years of dancing with one another and two very public breakups, T-Mobile and Sprint finally agreed to get married. The combined company – which still needs to clear antitrust regulators – will assume the name T-Mobile and will leave just three big wireless carriers in the US (the other two being Verizon and AT&T).
The marriage of the third and fourth largest wireless service providers in the US will result in a mammoth company – Sprint was valued at about $26 billion and T-Mobile was valued at about $55 billion. But will it be good for shareholders? Let’s examine.
Good for Shareholders?
Publicly, the new company has stated it will hire thousands of people in order to position T-Mobile as a leader in providing 5G connectivity. Surely that will move the company’s stock price north, right? Well not so fast…
On January 3, 2014, Sprint was trading at six cents under $10. And the proposed merger prices Sprint at $6.50…
On January 3, 2014, T-Mobile was trading at $32.28 and since the announcement, it has traded in the low $60 range…
But let’s not try to guess where the stock price of two companies are headed. Especially since many lawyers are suggesting that the proposed merger might not get approval from the regulators. Maybe instead we should look at the Telecommunications Services sector?
The Telecommunications Services Sector contains companies that provide communications services primarily through a fixed-line, cellular, wireless, high bandwidth and/or fiber optic cable network.
The world’s Top 5 Telecommunications Companies are:
- China Mobile Ltd
- Verizon Communications
- Vodafone Group
- Nippon Telegraph & Telephone
Through the end of April 2018, the Telecommunications Sector has performed as follows:
Source: Fidelity Investments and through April 27, 2018
Thoughts from a Financial Advisor
If the Sprint and T-Mobile merger tells us anything, it underscores the importance of diversification. So while I wonder whether the merger will be good for shareholders, I do look forward to discussing whether you think this merger will be good for consumers. Assuming the regulators allow it to proceed of course.
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