NEW YORK Shares in Sprint Corp (S.N) and T-Mobile US (TMUS.N) fell sharply on Thursday as investor hopes for a merger of the No. 3 and No. 4 U.S. mobile service providers faded on concerns about regulatory opposition.
Both companies' shares were boosted in late 2013 by reports that SoftBank Corp (9984.T), the owner of 80 percent of Sprint, was considering buying T-Mobile from its majority owner, Deutsche Telekom (DTEGn.DE), to merge both companies.
But T-Mobile and especially Sprint shares have slumped so far this year on analyst concerns they would be unlikely to gain U.S. government approval for a deal.
These fears were compounded in recent days by reports that U.S. Department of Justice and Federal Communications Commission have told the companies that they would look skeptically on a Sprint/ T-Mobile US union.
"You cannot get this deal done," said a source familiar with the matter who added that commentary from Washington has locked the regulators into public positions "which has reduced the probability to get things done easily."
Sprint and T-Mobile shares spiked on Wednesday after a dealreporter.com report that a deal could come together as soon as next week, only to fall again on Thursday after a Bloomberg story cited the risks such an attempt would face.
"Today's reversal of yesterday's spike was due to a another report that highlighted significant deal hurdles including regulatory approval risks and the amount of any potential break-up fee," said Roe Equity Research analyst Kevin Roe.
Both shares have been volatile since the beginning of the year as hopes for a deal dampened.
"Heightened expectations for a Sprint/T-Mobile merger as we exited the year have deflated significantly due to unusually tough talk from the anti-trust division of the DoJ and press reports regarding the FCC's stance," Roe said.
Sprint shares fell 7 percent on Thursday to $7.88, giving up most of the previous session's 8 percent gain. The stock has fallen 27 percent since late December, when it reached a $10.79 peak on speculation that it was preparing for a T-Mobile merger this year.
Parent company Softbank is down 20.65 percent over the same period.
T-Mobile shares also fell 7 percent on Thursday to $29.55 after closing up 5 percent the day before. Its stock has fallen 12 percent from a $33.64 peak in late 2013.
(Reporting by Sinead Carew; Editing by David Gregorio)