Daily M&A: AT&T/T-Mobile Will Force Other Mergers (T, Q, CTL, VZ, VOD, S, PCS, LEAP, USM)

It’s 12:00 PM and that means it is time for “The M&A Daily.”  This weekend’s AT&T Inc. (NYSE: T) $39 billion buyout of Deutsche Telekom’s T-Mobile is going to have some severe ramifications in the world of telecom and wireless communications here in the U.S.  The deal is on the back of Qwest Communications International Inc. (NYSE: Q) merging with CenturyLink, Inc. (NYSE: CTL), which has been approved with conditions.

This merger will probably help to lock in a near duopoly between AT&T and Verizon Communications Inc. (NYSE: VZ).  It should be no surprise that some will wonder if this will force an unlocking of the Vodafone PLC (NYSE: VOD) deal with Verizon as well.

We wanted to consider a couple of other possibilities for the wireless sector.  First, this leaves Sprint Nextel Corporation (NYSE: S) in a no-win position.  Deutsche Telekom was recently rumored to be in some sort of deal with Sprint, but what is more important was that the two weaker wireless players have been rumored to be in a potential deal for longer than you could believe.  Sprint Nextel shares are down 14% at $4.33.

Leap Wireless International Inc. (NASDAQ: LEAP) is up almost 13% at $13.70 with a $1.08 billion market cap and MetroPCS Communications, Inc. (NYSE: PCS) is up 5.5% at $15.75 with a $5.6 billion market cap.  There was a failed merger between the two pre-paid wireless carriers before.  This leaves them with little choice but to go in and merge now if they want to remain relevant and to remain competitive on costs.

Perhaps the most overlooked and/or easiest to forget about is the thinly traded United States Cellular Corp. (NYSE: USM), more commonly known as US Cellular.  With shares up 5% at $48.60, its market cap is $4.15 billion.  The company has been rumored to be a M&A target in the past but so far nothing has ever happened.

It may seem odd to many that Verizon is up with AT&T.  The logic behind it is simple: fewer competitors will translate to price stability and pricing power to be enjoyed by both.  Verizon shares are up 2.4% at $36.71, more than the AT&T gain of 1.2% to $28.28 so far on Monday.

By now you know the drill with Wall Street’s mantra for greed begets more greed: Big mergers beget more mergers!

JON C. OGG