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No Breakup fee in Sprint/T-Mobile Merger

No Breakup fee in Sprint/T-Mobile Merger

Deutsche Bank has trimmed price targets on Sprint (S -2.9%) and T-Mobile (TMUS -0.5%), saying the much-discussed merger talks face risks as the coming election year brings a swell of populism. Late last week it was reported that a deal would be official before the end of the month and could be announced with the carriers' quarterly earnings. A breakup fee is a fee that one party (usually the one buying the other) would have to pay to the other party if the deal doesn't go through for some reason.

A tie-up between Sprint and T-Mobile would cut the number of national wireless carriers to three from four, meaning it'll likely feature high on the to-do list of Makan Delrahim, the new head of the antitrust division at President Donald Trump's Justice Department.

The lack of a breakup fee means that both sides could urge regulators to approve the deal, without it helping one side over another.

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"We remain very bearish on the prospects for deal approval", analyst Matthew Niknam says, trimming the firm's target on Sprint to $7 from $8 (Sprint's down to $7.09 today), and on T-Mobile to $65 from $70 (implying 6.1% upside). The wireless carriers are pursuing the deal to bulk up against larger competitors AT&T Inc. and Verizon Communications Inc.in a cutthroat market for mobile-phone customers.

Hot on the heels of a report that claimed that T-Mobile and Sprint are hammering out the final details of a merger, several senators have penned a letter asking for an investigation into the two carriers. Majority owner SoftBank Group Corp. reportedly would accept a valuation around Sprint's market price.

The companies are also continuing discussions around non-cash items, including the location of the combined entity's headquarters and appointments to the executive management team, one of the people said. Of course, all of this should be made official in the next few weeks if the recent reports are indeed correct.