Stocks opened higher Monday but fell over the course of the session. The Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) both closed down but still managed gains for the month of April.
Today’s stock market
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Data source: Yahoo! Finance.
Big mergers were in the news today. T-Mobile US (NASDAQ: TMUS) and Sprint Corporation (NYSE: S) declared their intention to pair up, and Marathon Petroleum (NYSE: MPC) announced it is buying Andeavor (NYSE: ANDV).
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T-Mobile and Sprint fall on merger news
After years of attempts, T-Mobile and Sprint said this weekend that they have agreed on a merger that will combine the third- and fourth-largest U.S. wireless carriers in an all-stock deal that values the new company at $146 billion, based on stock prices at Friday’s close. T-Mobile will be exchanging 0.10256 T-Mobile shares for every Sprint share, and the new company will be named T-Mobile and led by the current T-Mobile CEO, John Legere. Both stocks fell in reaction to the news, with Sprint losing 13.7% and T-Mobile sagging 6.2%.
If the deal is completed, T-Mobile’s top investor, Deutsche Telekom, will own 42% of the company and Sprint’s main backer, Japan’s SoftBank Group, will own 27%. Current Sprint CEO Marcelo Claure will serve on the board of directors, as will Legere and SoftBank’s Masayoshi Son. The companies expect to achieve a whopping $6 billion in annual cost savings by combining, representing what they said was a net present value of $43 billion.
The deal faces the uncertainty of regulatory approval by U.S. Department of Justice antitrust enforcers and the Federal Communications Commission. With that in mind, the companies put forth arguments for why the merger will benefit consumers and even the country as a whole. The top of that list was the migration to 5G networks, which the companies vowed to accelerate if they were allowed to join forces. Sprint and T-Mobile highlighted job growth and innovation that would come as a consequence.
Having a third major carrier with the combined heft of T-Mobile and Sprint seems likely to increase competition in the industry rather than diminish it, but the politics of regulatory approval creates uncertainty, and investors were reluctant to applaud the deal today.
Marathon and Andeavor aim to create refining and pipeline giant
Marathon Petroleum announced it is buying oil refiner Andeavor for $23.3 billion, creating the largest oil refiner in the U.S. and one of the top five in the world. Andeavor shareholders will have the choice of accepting $152.27 in cash or 1.87 shares of Marathon stock for each Andeavor share, subject to a proration mechanism that will result in 15% of the deal being paid out in cash. Investors bid up the shares of Andeavor 13% on the news, while Marathon sank 8%.
The deal combines two companies that complement each other geographically, with Marathon being focused east of the Mississippi and Andeavor, formerly known as Tesoro, principally in the West. Besides the refining assets, the combination brings together Marathon’s network of 2,740 Speedway convenience stores with Andeavor’s 3,200-store retail system. The two companies also control two large pipeline networks, traded as master limited partnerships MPLX LP and Andeavor Logistics LP, which will combine into a massive midstream business.
Marathon expects over a $1 billion in annual cost savings and that the cash flows will support dividend increases and continued share repurchases, authorizing a new $5 billion in share buybacks.
Marathon also announced first-quarter earnings per share of $0.08, which missed analyst expectations for $0.15 in EPS and perhaps added to pressure on the stock, but news of the huge merger in the oil sector occupied most of investors’ attention today.
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