Stock Market Reactions to the Sprint-TMO Merger

By George S. Ford (Phoenix Center for Advanced Legal & Economic Public Policy Studies)

I conduct an event study on the proposed $26.5 billion merger between Sprint and T-Mobile. Positive and statistically significant stock price effects are observed for the merging firms in response to credible rumors of the transaction, but large and negative returns are observed after the official announcement, reflecting perhaps fears of antitrust impediments to the deal or a response to the release of greater details on the transaction. The pattern of returns for the merging firms and Verizon is consistent with a market power interpretation of the merger. AT&T’s returns appear unaffected by news of the transaction, so one might reasonably conclude the evidence is mixed. Event studies are but one piece in a portfolio of evidence. Industry structure in the mobile wireless industry has been heavily influenced by past regulatory decisions thereby requiring modification to the traditional assessment of the horizontal mergers. The combination of Sprint and T-Mobile warrants thoughtful analysis as it may affect market performance in the mobile wireless industry in either positive and negative ways, or both.