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Yahoo BusinessJan 17, 2020
Sprint's Floundering Stock Cannot Tell a Lie
(Bloomberg Opinion) -- Traders who make a living betting on mergers still won't touch T-Mobile US Inc. and Sprint Corp.'s deal with a 10-foot pole. The wireless carriers may have been able to butter up two federal regulatory authorities by using the wonders of a 5G-powered America to distract from their deal's likely competitive harm. Even so, merger-arbitrage traders live in a world of mathematical probabilities informed by laws and legal precedents, and on that basis, it's hard to imagine that the judge presiding over a case brought by a group of state attorneys general opposing the deal will rule in the companies' favor. Lawyers for both sides each delivered closing arguments Wednesday, with a decision from U.S. District Judge Victor Marrero expected to come some time in February. Analysts largely view the odds as a toss-up, if not slightly tipped in T-Mobile and Sprint's favor. But the equity market paints a meaningfully different picture: The per-share value of T-Mobile's offer is 67% higher than where Sprint's shares are trading, by far the biggest spread of any pending U.S. deal. The wide gap implies that traders see an extremely low likelihood that the transaction gets done, and Sprint options activity is sending the same signal.Of course, this also means that if the companies do win in court, some traders popping antacids right now stand to make a substantial return. But for the most part, arbitrageurs have chosen to stay away. "This is one of those seminal situations in merger arb history," said Roy Behren,
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