T-Mobile US, Inc. (TMUS) announced on Tuesday that it would divest spectrum capacity to Dish Network Corporation (DISH) to obtain Department of Justice (DoJ) approval for its Sprint Corporation (S) merger. If accepted, the deal would add a fourth viable competitor, potentially increasing competition in a venue dominated by just three carriers. The news triggered healthy upticks in the stocks as well as shares AT&T Inc. (T) and Dow component Verizon Communications Inc. (VZ).
However, other hurdles remain before these suitors can tie the knot. Most importantly, attorneys general in 14 states have filed litigation that's set for trial in October if the DoJ approves a deal without major safeguards, potentially delaying the hook-up for months or years. There's no word if the states believe the agreement, as now structured, is sufficient for them to forestall legal action that could attract unwelcome attention during the 2020 presidential campaign.
TMUS Weekly Chart (2007 – 2019)
Sprint shareholders will receive one share of T-Mobile stock for every 9.75 shares they own if the merger is approved. T-Moblie US came public in April 2007, even though the current corporate structure wasn't finalized until the 2013 merger between T-Mobile and MetroPCS. The stock opened at $25.10 and topped out at $40.87 in July, marking the highest high for the next eight years, ahead of a persistent decline that ended at an all-time low near $5.50 in 2010. It tested that level in 2012 and turned sharply higher, completing a round trip into the prior decade's high in 2015.
A 2016 breakout caught fire, adding points at a rapid pace into May 2017, when the rally ended in the upper $60s. It carved a rounded correction into February 2019, completing a cup and handle breakout that generated choppy upside into May's all-time high at $80.93. The stock has drifted sideways to lower since that time, carving a holding pattern that is awaiting merger approval or denial.
An approval will bring the May high into play, raising the odds for a powerful breakout that opens the door to the triple digits. The stock has tested the 50-day exponential moving average (EMA) at least eight times since that start of 2019, making a breakdown into the $60s likely if the merger is denied. In turn, that will also test the cup and handle breakout, telling committed bulls that the stock needs to hold that support level at all costs.
VZ Monthly Chart (1999 – 2019)
T-Mobile's current rivals will benefit from the merger as well, with less competition translating into bigger rate hikes. Verizon stock posted an all-time high at $64.75 in 1999 following a multi-year uptrend and turned sharply lower, entering a volatile decline that bottomed out in the mid-$20s in July 2002. It bounced back to the $40s in 2007 and topped out, cutting through the prior low during the 2008 economic collapse. October's all time low at $21.48 marked a buying opportunity, ahead of a steady uptick that reached the prior high in 2012.
A breakout stalled in the mid-$50s in 2013, marking a price level that is still in play more than six years later. It tested that level in 2016 and 2017 but failed to break out, while an October 2018 buying impulse stalled within three points of the 1999 high in November. The stock then eased into a symmetrical triangle that is still in force, with the lower triangle trendline repeatedly testing new support at the 2018 breakout.
Accumulation-distribution readings have lifted to new highs, raising the odds that the stock will eventually mount multi-decade resistance in the mid-$60s, with or without merger approval. However, bearish news flow could break triangle support, signaling a failed rally above the 2013 high. In turn, that price action has the power to end the uptrend that started in 2008 and drop the stock into a secular bear market.
The Bottom Line
T-Mobile and Sprint have taken another step forward in their merger efforts, seeking to divest assets in an attempt to gain DoJ approval.
Disclosure: The author held Verizon shares in a family account at the time of publication.