Last week, we told you about an analyst for Cowen & Co. named Paul Gallant; the analyst wrote a note to his clients about the bench trial in Manhattan filed by 13 state attorneys general and the attorney general of Washington D.C. seeking to block the T-Mobile-Sprint merger. Gallant told the securities firm's clients that with the testimony all completed, he sees a 60% chance that Judge Victor Marrero will rule against T-Mobile, effectively blocking the $26.5 billion merger (although both sides are likely to appeal a decision against them). The transaction already cleared what many consider to be the highest hurdle that it faced in this long process, approval from the FCC and the Department of Justice (DOJ).
Gallant wrote to clients, "After attending the trial, we suspect Judge Marrero will side with state AGs and block the T-Mobile/Sprint merger." He bases this on his feelings that the attorneys general "probably met their initial burden of proof–companies rarely win once that happens. And (the) states likely raised enough questions about (the) Dish fix and merger synergies to prevent Marrero from accepting them."
One analyst cites the testimony of Dish Chairman Charles Ergen as the reason why he thinks T-Mobile will win
The plaintiffs are concerned that by reducing the number of major U.S. carriers from 4 to 3, prices in the industry will rise. Even though Dish Network is set to start building a wireless company that will grow to replace Sprint, the plaintiffs argue that Dish has never sold wireless service before and can't be counted on to replace Sprint. And when it is pointed out to the plaintiffs that T-Mobile's deal with the FCC requires it to freeze prices for three years, they say that there is a loophole in the contract.
Cowan's Gallant isn't the only Wall Street analyst speaking out about the trial. Fortune reports that some of them disagree with their colleague and expect that the judge is going to allow the merger to be allowed. Telecom, media, and tech analyst Walt Piecyk at Lightshed Partners believes that the testimony of T-Mobile CEO John Legere, Dish Network Chairman Charles Ergen, and former Sprint CEO Marcelo Claure was enough to persuade the judge that after the merger, the competitive balance in the industry will remain the same.
Under oath, Claure made some key points noting that if the deal is blocked, Sprint would have to raise prices and borrow more money to stay afloat. So in other words, if the deal does not go through and the attorneys general get their way, prices will go up anyway. And if Sprint piles on too much debt and can't cover it, the carrier will disappear leaving three majors remaining without the prospect of Dish building a replacement.
But Piecyk was more impressed with Ergen's testimony. The analyst said, "Many investors believe that the case hinges on Charlie Ergen’s ability to establish himself and Dish as a viable and credible fourth wireless competitor. We believe he did that…under cross-examination." As a result, he told clients that "Our optimism continues to grow about T-Mobile’s ability to prevail. If T-Mobile prevails and the States are unable to obtain a stay while they appeal, we expect the companies to close the transaction."
Raymond James' Ric Prentiss says that he expects the judge to rule in favor of T-Mobile. However, the analyst told clients that he has "lowered our odds of deal approval probability from 85% to 55%." Prentiss pointed out that T-Mobile and Sprint didn't give away any more concessions and nothing took place during the trial that would have made a decision easier for the judge to make either way.
Closing arguments are scheduled to take place on January 15th with a decision to follow next month. T-Mobile is hoping to obtain Sprint's mid-band 2.5GHz spectrum so that it can increase the breadth and speed of its nationwide 5G network.