I'm a T-Mobile (NASDAQ: TMUS) convert. After many years with AT&T and a short bout with Sprint, I finally took the plunge and never looked back. My reception in most metro areas is the same or better than it was with AT&T, and my unlimited plan (which even comes with a personal hot spot), costs me just a $75 flat fee each month -- like it has for years.
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I can't tell you how many of my friends on other networks complain about their high cell phone bills and spotty service. Most can't believe I pay so little for service and get certain perks included, like the aforementioned hot spot, as well as free texting on American Airlines flights and even international calls to certain countries.
For those of you who haven't been following this story, here are the details: On April 29, T-Mobile announced a deal to take control of Sprint in an all-stock acquisition.
T-Mobile and Sprint had roughly 59 million and 41 million users, respectively, so this deal would bump the resulting company up to the second-largest wireless provider in the United States, between No. 1 Verizon Communications (NYSE: VZ), which reported nearly 116 million U.S. wireless users at the end of 2017, and No. 3 AT&T (NYSE: T), which has 93 million customers.
The new company would keep the name "T-Mobile" and would be led by T-Mobile CEO John Legere. The current terms of the all-stock transaction are for a fixed exchange of 9.75 Sprint shares for each T-Mobile share. T-Mobile parent Deutsche Telekom AG will own 42% of the combined company, and Sprint parent SoftBank Group will own 27%.
Why This Deal Could Be Great
When the merger agreement was announced, investors punished both stocks, thinking that a deal wouldn't be approved. In fact, this same acquisition was shot down years ago under the Obama administration -- but things are much different now.
For one, T-Mobile CEO John Legere (who is also slated to head up the new company, post-merger) is speaking the Trump administration's language as he cheerleads and sells the deal to the media and regulators.
One of the highlights of Legere's pitch is that the deal will not only drive overall prices lower and spur more competition (as AT&T and Verizon would now have real competition) but would also help us keep pace with China in the race to roll out super-fast 5G technology.
Hard to argue with positives like that.
But the biggest kicker is the fact that new, powerful competition, like Comcast, is entering the space. I wouldn't be surprised if Google or Amazon jumped in the fray somehow.
The bottom line is that I believe a deal will be approved and shares will climb as more people realize that potential.
The acquisition would allow T-Mobile to instantly convert millions of users to its platform and gain control of tens of thousands of cell towers owned by Sprint, which will only add to its great service. I suspect that T-Mobile will try to upsell Sprint's 60 million customers to its $75 real unlimited plan, which is just $15 above Sprint's top plan rate of $60 and would come with T-Mobile's perks and quality -- a move that could result in a major earnings bump.
And if the deal gets shot down, shares of TMUS are likely to climb anyway, as there are no breakup fees to be paid and the company is getting tons of free press!
TMUS sank nearly 7% after the deal was announced, due to investors doubting the deal's viability. Shares are stabilizing around current prices around the $60 level as I write this, which is also near the stock's 2018 lows (even though this deal -- and the publicity it's stirring up -- are likely to be a boon for the company).
We don't need to see a major price move to net us a nice return. If shares climb 13.2% back to $66 -- where TMUS was trading before the merger was announced -- my Profit Amplifier subscribers and I will grab a potential 72.7% gain before mid-November. That's 132.7% annualized.
Sounds crazy right? It isn't -- Wall Street uses the same strategy every day.
If this still sounds risky to you, maybe because you're new to options trading, know that this trade breaks even if TMUS hits $63. Now, that's just about 11.5% above recent prices, but still well under T-Mobile's pre-announcement price.
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