NEW YORK (TheStreet) - If Sprint's (S) majority-owner SoftBank tries to push the telecom's merger with T-Mobile (TMUS), creating a third wireless carrier in the United States with at least 100 million subscribers, the regulatory risks inherent in a deal could outweigh financial risks. That's the case even though a combined Sprint and T-Mobile would become third most indebted junk-rated company in the U.S., requiring "flawless" execution to get to a point of financial stability, according to Moody's Investor Service.
Moody's believes the risks of a merger start the day the deal is announced because both companies are in the midst of network upgrades and M&A can dent operational performance. Meanwhile, the prospect of a lengthy regulatory review and the likelihood that antitrust regulators stand their ground on an effort to have four nationwide wireless carriers could prove an insurmountable challenge for Sprint and T-Mobile.
A large breakup fee if a transaction were blocked by either the Department of Justice or the Federal Communications Commission means there is also the risk that T-Mobile continues to be the asset that proves too hard to buy for competitors like AT&T, Verizon and Sprint. AT&T's failure to buy T-Mobile for $39 billion in 2011, after all, sparked a multi-year run of consolidation in the telecom industry.
Mark Stodden, a senior analyst at Moody's Investor Service, said in a Tuesday telephone interview he gives Sprint and T-Mobile less than 50% odds of successfully completing a deal.