Another day, another proposed mega-deal. M&A is the big story of this stage of the bull run. Market participants became too familiar with special dividends in 2013, and corporate financiers moved towards massively increasing share buybacks making large portions accelerated in 2014, and now the rage is mergers. As we detailed in this space Monday:
last month’s activity reached a fever pitch, representing the single largest total ever. Per FT.com:
The overall value of deals in US-bound mergers and acquisitions activity amounted to $243bn in May compared to $226bn during the same month in 2007 and $213bn in January 2000, the previous biggest and second biggest months respectively, according to Dealogic data.
Today the WSJ.com is reporting that Dish Networks (DISH) and T-Mobile (TMUS) are in merger talks, just as AT&T and Direct TV (DTV), DISH’s arch-rival in satellite TV, are very near their previously announced mobile phone / satellite TV combination closing.
The urge to merge in cable makes sense, and we have seen some mega deals. And I even get the reasons for cross selling TV, internet, land line and mobile phone service, but I am hard-pressed to think that the FTC is going to allow the re-emergence of telco monopolies. And that’s exactly how this whole thing is gonna look when its all said and done, especially if Republicans were to take back the White House in 2016 and retain a majority in Congress. If that’s the case we already know how this will end in a decade or so. These new mega companies will once again be broken up either by regulators or with the companies themselves spinning off slower growing businesses. We have seen this movie before.
Shares of Sprint are down this morning. And I suspect at some point soon if a TMUS/DISH deal is announced Softbank (who owns 80% of Sprint ) will look for some sort of strategic option to strengthen Sprint’s positioning against increasingly competitive lower end offerings in the U.S. market. In my mind, the fact that Softbank owns such a large percentage of Sprint means that aside from an all out sale there is little optionality for upside in the current M&A binge.