Sprint, T-Mobile US and Verizon stock market price movements after the announcement of the effort to merge Sprint with T-Mobile US suggest investors believed the deal, if completed, would reduce reduce competition in the mobile market, making it easier for all the firms to better maintain prices and profit margins, and therefore boosting equity values in the industry.
In other words, investors viewed the potential transaction as a matter of “gaining market power.”
“The pattern of returns for the merging firms and Verizon is consistent with a market power interpretation of the merger,” said George Ford, Phoenix Center for Advanced Legal and Economic Policy Studies chief economist.
On informal news of the merger on April 10, 2018, Sprint’s stock price rose 16 percent (market adjusted), and then rose another 8.5 percent on April 27 when the media reported that the official announcement would come two-days later on a Sunday, Ford says.
T-Mobile US saw its stock price rise 4.3 percent on the April 10 news. Verizon’s rose sharply on April 10 and again on April 27.
In other words, prices rose in anticipation of a reduction in competition, but then fell as fears of antitrust opposition grew.
“Positive and statistically significant stock price effects are observed for the merging firms in response to credible rumors of the transaction, but large and negative returns are observed after the official announcement, reflecting perhaps fears of antitrust impediments to the deal or a response to the release of greater details on the transaction,” said Ford.
It always is a good idea to "follow the money" when evaluating company statements.
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