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States Flex Antitrust Muscle in T-Mobile-Sprint Merger Fight

June 12, 2019, 8:31 AM

States challenging T-Mobile US Inc.'s bid to acquire Sprint Corp. could tie up the deal for months, seek injunctions to halt their integration or negotiate for more concessions.

The proposed $26.5 billion transaction could drag on even if the Justice Department decides not to oppose it.

“I would say they have a strong case to bring, and then as far as interplay with DOJ, I think they would love it if DOJ joined in but I think they would go forward either way,” John Newman, an assistant law professor at the University of Memphis and a former DOJ antitrust official, said about the states’ move.

State attorneys general from nine states and the District of Columbia filed a lawsuit seeking to block the merger June 11, arguing that a combination of the nation’s third- and fourth-largest carriers would reduce wireless industry competition and lead to higher consumer prices.

That’s a straightforward legal argument that could resonate in court.

“If it’s viewed in traditional competition criteria, it’s a very strong case,” Andrew Jay Schwartzman, a media lawyer at Georgetown University Law Center who opposes the deal, said. “Four to three, in a market that has been competitive, and this could make it much less competitive.”

Blocking Valero

States have held up deals before that federal authorities approved, Newman said.

The Federal Trade Commission approved oil producer Valero Energy Corp.'s deal to buy Plains All American Pipeline LP. But in 2017, the companies abandoned the deal after the California attorney general’s office sued on antitrust grounds.

California Attorney General Xavier Becerra (D) asked the court then to issue a temporary restraining order and sought a preliminary injunction to block integration.

Continuing the merger would mean Valero would have to “endure the continued uncertainty” from a lengthy trial and considerable costs associated with it, Valero said in 2017.

“I think the Valero example is a pretty clear indication that a federal agency can sign off on a deal but nonetheless state enforcers can go ahead and in that case experience success,” Newman said.

The post-merger T-Mobile’s market share “would exceed the threshold at which mergers are presumed to violate antitrust law” in many markets, Becerra told reporters on a June 11 conference call. The new company would control more than 50% of the Los Angeles market, he said.

“T-Mobile and Sprint not only compete today against Verizon and AT&T for customers but they compete against each other. That competition disappears if this merger goes through,” Becerra said.

Argument for Competition

T-Mobile and Sprint argue their merger is necessary to compete with larger rivals AT&T Inc. and Verizon Communications Inc. Sprint has suggested that it could wither otherwise.

The Justice Department frequently opposes deals that would reduce the number of major companies, including suing to block AT&T and T-Mobile from merging in 2011, Eleanor Tyler, a Bloomberg Law senior legal analyst, said.

“Direct competition between Sprint and T-Mobile has led to lower prices, higher quality service, and more features for consumers,” the state attorneys general said in their June 11 filing

“If consummated, the merger will eliminate the competition between Sprint and T-Mobile and will increase the ability of the remaining MNOs to coordinate on pricing,” the state officials argued in their lawsuit in the U.S. District Court for the Southern District of New York.

The Federal Communications Commission is likely to approve the deal. Chairman Ajit Pai and the agency’s two other GOP commissioners said they’d back the merger after T-Mobile and Sprint said they would divest Boost Mobile, one of their three prepaid brands, to merge. The DOJ hasn’t said which way it will go.

States can similarly seek concessions. And the negotiations and any possible assets the carriers may give up in the process could hamper the merger.

“The more of those crown jewels you have to give up, the less valuable the merger is, and the longer delay,” Tyler said. “Delay kills mergers.”

—With assistance from Ruiqi Chen

To contact the reporter on this story: Jon Reid in Washington at jreid@bloomberglaw.com

To contact the editors responsible for this story: Roger Yu at ryu@bloomberglaw.com; Keith Perine at kperine@bloomberglaw.com

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