Last week's DOJ ruling against AT&T's (T) plans to move ahead with its planned buyout of T-Mobile USA (a division of Deutsche Telekom (DT)) was the biggest stock-related shocker of the week.
Since then, plenty has been written about whether this ruling spells the end of the deal or not. AT&T, of course, is saying it will fight the ruling "vigorously."
First, let's talk about what will happen. Then we'll discuss the stock implications.
Lots of people partial to the deal going through are talking about how Oracle (ORCL) fought the government and won in the matter of buying PeopleSoft. The logic seems to be: since Oracle was successful, AT&T will be too.
People are overlooking the very different specifics of both cases. The government's argument against an Oracle buyout of PeopleSoft is that Oracle would do an insufficient job of servicing old PeopleSoft customers. Oracle said that was a silly argument and convinced the judge of that.
The government is now saying that the competitive dynamics of the mobile phone space will be fundamentally less competitive with three players instead of four. I don't know how AT&T can argue against that. It certainly can't rehash Oracle's argument about PeopleSoft.
AT&T can offer to hire a bunch of call center agents in the U.S. It can offer spectrum. Whatever. None of that changes the fundamental argument the government is making.
Even if AT&T has a lot of money at stake in the break fee ($6 billion) and therefore will contest it, it still needs a fundamental argument.
As the market starts to grasp this over the coming weeks, I expect that AT&T will trade lower as people front-run the expected break fee the company will have to pay. People will also be wondering what's next for AT&T as a growth strategy.
There was a quick bounce in the price of Sprint's (S) stock after the DOJ ruling came in last week. This was a knee-jerk response, in which investors are hoping that an AT&T deal for Sprint (instead of T-Mobile) is more likely now.
But why would it be? The government will just use the same argument against market concentration that it's used on this deal.
There is always a chance that a player like Google (GOOG) -- someone completely outside of the mobile phone space -- could come in and make a play for Sprint or T-Mobile. That wouldn't be seen as anti-competitive.
But that chance has always been there regardless of the outcome of the AT&T/T-Mobile deal. Sprint's stock shouldn't have bounced as much as it did after the deal. It should continue to slide back (and already has).
Now, whose stock could do well from this announcement?
I think the DOJ killing of the deal will be a net positive for the stock of Verizon (VZ) as money migrates up to the market leader.
It could also open the door to another offer for T-Mobile from another player -- like Google or perhaps some new player. So Deutsche Telekom will likely see a bid before too long.
