The United States Department of Justice said on Friday that it is approving T-Mobile US Inc’s $26bn takeover of rival Sprint Corp, clearing a major hurdle to a deal that would merge the nation’s third- and fourth-largest wireless carriers.
The companies have agreed to divest Sprint’s prepaid businesses including Boost Mobile to Dish Network Corp in order to move ahead with the merger, which was announced in April 2018.
But the deal still faces significant challenges. A group of US state attorneys general have filed a lawsuit in federal court in New York to block the merger on antitrust grounds, arguing that the proposed deal would cost consumers more than $4.5bn annually.
T-Mobile Chief Executive Officer John Legere, who will be the CEO of the combined company, said it would deliver a 5G network with lower prices, better quality and thousands of jobs, while unlocking $43bn in synergies.
“We are pleased that our previously announced target synergies, profitability and long-term cash generation have not changed,” Legere said.
On Friday, the Justice Department and five state attorneys general said they were filing suit to enforce the settlement conditions that also include selling Virgin Mobile and Sprint prepaid and providing Dish with access to 20,000 cell sites and hundreds of retail locations.
Dish has agreed to acquire spectrum assets in a deal valued at $3.6bn from the merged firm and pay $1.4bn for Sprint’s prepaid business that serves about 9.3 million customers. Dish will get access to the combined firm’s network for seven years while it builds out its own 5G network.
Shares of T-Mobile, which is about 63 percent owned by Deutsche Telekom AG, were up 3.7 percent at $82.90. Shares of Sprint, which is about 84 percent owned by Softbank Group Corp, were up 6.5 percent at $7.92.
Prepaid wireless phones are generally sought by lower-income people who cannot pass a credit check.
T-Mobile, the third-largest US wireless carrier with about 80 million customers, pursued the deal in order to seek scale to compete with bigger rivals Verizon Communications Inc and AT&T Inc. Sprint has about 55 million customers.
T-Mobile US on Thursday beat analysts’ estimates for second-quarter net new phone subscribers who pay a monthly bill, boosted by the US mobile carrier’s wireless plans aimed at fending off its bigger rivals. The mobile carrier said it added a net 710,000 phone subscribers in the three months ending on June 30.
US Federal Communications Commission (FCC) Chairman Ajit Pai has given his blessing to the merger in principle and said in a statement on Friday that he would soon circulate a formal order.
The FCC is expected to give Dish more time to use spectrum it previously acquired, but also impose strict penalties if it fails to create a consumer wireless network within a set timeframe