June 11, 2019 / 7:42 PM / a month ago

Breakingviews - T-Mobile US backlash reveals M&A regulatory risk

A smartphone with Sprint logo are seen in front of a screen projection of T-mobile logo, in this picture illustration taken April 30, 2018. REUTERS/Dado Ruvic/Illustration

NEW YORK/SAN FRANCISCO (Reuters Breakingviews) - Dealmaking requires a modicum of consistency to give corporate chiefs the confidence to place multibillion-dollar bets. But the latest twist in T-Mobile US’s bid to win approval for its purchase of Sprint reveals a regulatory tug-of-war that’s anything but predictable.

The attorneys general of New York and California are leading a band that includes eight of their counterparts in an attempt to block T-Mobile’s $26 billion deal for its SoftBank-backed rival. The lawsuit filed on Tuesday cites competition concerns. T-Mobile is the third-largest wireless carrier in the United States and Sprint is fourth. Combing the two will reduce the number of options for consumers and lead to higher prices, that plaintiffs contend. 

That’s not a view that the telecom industry’s top watchdog appears to share. Last month Federal Communications Commission Chairman Ajit Pai signaled his approval of the tie-up if the two firms would make some concessions, such has having Sprint sell its pre-paid business Boost Mobile.

Government agencies tend to work in concert to achieve their goals, even when they don’t belong to the same political party. In 2013, Texas was among seven local authorities that filed a lawsuit with federal prosecutors against the $11 billion merger between US Airways and Fort Worth-based American Airlines. The companies divested takeoff and landing slots and gates at seven airports to settle the lawsuit.

Lately though, the regulatory front has been one of competing agendas. When the Department of Justice sued in an effort to stop AT&T’s acquisition of Time Warner, nine state attorneys general backed the telecom firm, which ultimately prevailed, while none rallied behind the DOJ. That’s unusual given local authorities often complain about deals involving consumer brands.

T-Mobile and Sprint are waiting for the DOJ to give a green light to this merger too. Yet even in that department there are signs of a schism between the chief antitrust litigator Makan Delrahim and his staff. The latest move from the states may stiffen the opposition at Justice. New York State Attorney General Letitia James indicated that her group didn’t even give the DOJ advance notice of the lawsuit. That means any corporate boss contemplating a big deal now has to consider regulatory crossed lines as one more M&A risk factor.

Breakingviews

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