By Diane Bartz and David Shepardson
WASHINGTON (Reuters) – The U.S. Justice Department said on Friday it is approving T-Mobile US Inc’s <TMUS.O> $26 billion (£20.9 billion) takeover of rival Sprint Corp <S.N>, clearing a major hurdle to a deal that would merge the nation’s third and fourth largest wireless carriers.
The companies have agreed to divest Sprint’s prepaid businesses including Boost Mobile to Dish Network Corp <DISH.O> in order to move ahead with the merger, which was announced in April 2018.
But the deal still faces a significant challenge. A group of U.S. state attorneys general have filed a lawsuit in federal court in New York to block the merger on antitrust grounds, arguing that the proposed deal would cost consumers more than $4.5 billion annually.
T-Mobile Chief Executive Officer John Legere, who will be the CEO of the combined company, said it would deliver a 5G network with lower prices, better quality and thousands of jobs, while unlocking $43 billion in synergies.
“We are pleased that our previously announced target synergies, profitability and long-term cash generation have not changed,” Legere said.
On Friday, the Justice Department and five state attorneys general said they were filing suit to enforce the settlement conditions that also include selling Virgin Mobile and Sprint prepaid and providing Dish with access to 20,000 cell sites and hundreds of retail locations.
Dish has agreed to acquire spectrum in a deal valued at $3.6 billion from the merged firm and pay $1.4 billion for Sprint’s prepaid business that serves about 9.3 million customers. Dish will get access to the combined firm’s network for seven years while it builds out its own 5G network.
Shares of T-Mobile, which is about 63 percent owned by Deutsche Telekom AG <DTEGn.DE>, were up 3.7% at $82.90. Shares of Sprint, which is about 84 percent owned by Softbank Group Corp <9984.T>, were up 6.5% at $7.92.
Prepaid wireless phones are generally sought by lower-income people who cannot pass a credit check.
T-Mobile, the third largest U.S. wireless carrier with about 80 million customers, pursued the deal in order to seek scale to compete with bigger rivals Verizon Communications Inc <VZ.N> and AT&T Inc <T.N>. Sprint has about 55 million customers.
T-Mobile US on Thursday beat analysts’ estimates for second-quarter net new phone subscribers who pay a monthly bill, boosted by the U.S. mobile carrier’s wireless plans aimed at fending off its bigger rivals. The mobile carrier said it added a net 710,000 phone subscribers in the three months ended June 30.
Federal Communications Commission Chairman Ajit Pai has given his blessing to the merger in principle and said in a statement on Friday he would soon circulate a formal order.
The FCC is expected to give Dish more time to use spectrum it previously acquired but also impose strict penalties if it fails to create a consumer wireless network within a set timeframe.
(Reporting by Diane Bartz and David Shepardson; Editing by Paul Simao)