Sprint Stock Jumps on Merger Talks

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What happened

Shares of Sprint (NYSE: S) soared on Tuesday after The Wall Street Journal reported that the wireless provider had restarted merger talks with rival T-Mobile US (NASDAQ: TMUS). Previous talks collapsed in November, putting a deal between the two companies on ice. Sprint stock was up about 18% at 3:10 p.m. EDT, while T-Mobile stock was up about 7%.

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So what

Talks between Sprint and T-Mobile are at a preliminary stage, according to the WSJ's sources, and it's unclear exactly what's being considered. A disagreement over who would control the combined company torpedoed merger talks last year, and regulatory issues killed a deal in 2014.

One major issue: Around 85% of Sprint is owned by SoftBank Group, while T-Mobile is controlled by Deutsche Telekom AG. Talks last year fell apart after SoftBank CEO and Sprint Chairman Masayoshi Son took issue with giving up control of the wireless carrier. Nothing has changed in the past five months, so that hurdle remains.

Another possible problem: AT&T's proposed takeover of Time Warner is in limbo after the Department of Justice sued to block the deal late last year. Whether the Trump administration will allow a Sprint and T-Mobile merger is unclear.

Now what

If Sprint and T-Mobile do go through with a merger, the resulting company will become the second largest wireless carrier in the U.S. with around 100 million customers. That's a bit ahead of AT&T and slightly behind market leader Verizon Communications.

But such a deal would reduce competition, giving consumers only three options. If Sprint and T-Mobile attempt to merge, regulatory scrutiny is a guarantee.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends Time Warner and T-Mobile US. The Motley Fool has a disclosure policy.