Telecom carrier T-Mobile announced last week that it will offer consumers a $15-dollar monthly data plan if its $27 billion merger  with Sprint is approved.

The reduced-rate plan is reportedly being offered to ease the concerns of regulators and other industry watchdogs who fear that the merger could drive up plan prices for all wireless customers.

If and when the merger is finalized, T-Mobile executives have reportedly said the newly combined company would offer a plan that provides users with unlimited talk, text, and 2GB of data, at approximately half the cost of its cheapest plan currently. Additionally, T-Mobile said in a press release it will give emergency workers and first responders 10 years of free 5G service, and that it will provide 10 million homes in the U.S. and Puerto Rico with free wireless service and subsidized devices.

These initiatives could be designed to convince consumers and states attorneys general that a merger between T-Mobile and Sprint won’t mean that the company will only seek out the most lucrative customers who can afford the most expensive plans, according to reports.

While the merger was approved by the Federal Communications Commission in October 2019 and by the Department of Justice in July 2019 the deal still faces antitrust lawsuits from 12 states including New York and California. These suits, which object to the merger on the grounds that it could create a monopoly that will increase consumer prices, are set to begin in early December.

T-Mobile enters the price wars

By offering a $15 plan, T-Mobile has also entered a competitive market, with other providers offering cheap plans. AT&T’s Cricket offers a prepaid 2GB plan costs $30 per month, for example, and Sprint’s Boost costs  $35 per month for 3GB of data. (AT&T merged with cable and entertainment company Time Warner earlier in 2019.)

Details about the merger

• T-Mobile and Sprint have been in talks to merge since April 2018. The companies are the nation’s third and fourth-largest mobile providers, respectively. And together they’d create a new telecom giant with a reported 126 million subscribers. Verizon would still be larger than the combined company, with 150 million subscribers, according to reports.
• Big mergers like the one proposed between T-Mobile and Sprint have sparked monopoly concerns in the past.
• Sprint and T-Mobile had floated a merger in 2014. Those plans, however, were thwarted by regulators who feared the combined company could create a monopoly. Similarly, in 2011, AT&T similarly attempted to merge with T-Mobile, a move that was also blocked by regulators.
• A merger between T-Mobile and Sprint, if approved by regulators, would leave the U.S. telecom market with just three big players, sparking fears of a monopoly. A monopoly, generally speaking, is when one company has a lockdown on a market and can control pricing for its products and services without fear of competition.

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On Monday, defense companies Raytheon and United Technologies announced their intention to merge, in a deal that could create a $100 billion company, according to reports. The combined business potentially would be an aerospace and defense industry giant, nearly rivaling Boeing for market cap.

The defense industry has undergone significant consolidation in the past few years, as companies have acquired one another in an effort to cut production costs as competition for defense contracts has gotten more intense, according to reports.

More about the proposed merger

• The combined company will be called Raytheon Technologies, according to reports.
• The new company could have $74 billion in sales. (Boeing has annual sales of approximately $100 billion for its 2018 fiscal year.)
• The companies have emphasized that their businesses do not overlap. That’s important as various federal agencies, such as the Department of Justice and Federal Trade Commission, review the potential merger for monopoly concerns.
• Raytheon emphasized in a press release that the merger would free up cash for research into a new aerospace and defense products.
• Among current products, United Technologies produces engines for the F-35 fighter jet; Raytheon produces the Patriot missile.
• President Trump has reportedly expressed concerns that the merger could make the defense industry less competitive, and could make federal contracting negotiations more difficult.
• The deal is expected to be completed by the first half of 2020, according to sources.

More about the defense industry

The aerospace and defense industry is made up of companies that produce aircraft and spacecraft for both military and civilian use. It also includes manufacturers of military equipment, vehicles, and weapons, such as missiles and bombs.

It does not include companies that manufacture or sell guns and ammunition for hunting and recreational use. It also excludes companies engaging in non-aviation related commercial services at airports, like restaurants and shops.

The industry employs tens of millions of U.S. workers and drives billions of dollars in revenue every year. Approximately 16% of the federal budget, or more than $600 billion, goes directly toward defense and homeland security-related activities. Most, if not all of that money ends up going to companies in the defense industry.

In 2016, the sector employed 2.4 million people in the U.S. and generated $872 billion in sales.

Though there are hundreds of active firms, some of the sector’s largest companies include Boeing, Lockheed Martin, and Northrop Grumman.

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It has reportedly rounded up $60 billion in cash from various investment banks in order to make the deal happen.

But wait a minute, didn’t Fox agree to merge with entertainment company Disney?

Let’s take a trip back…

Back in December, Disney announced it would acquire numerous divisions of Fox, including its film and television studios, cable entertainment networks and international TV businesses, in a deal worth $52 billion.

So why is Comcast making an end run around Disney to try to capture Fox?

It’s what’s known in the investing world as a hostile bid, or hostile takeover. That’s when one company attempts to buy a company, against the wishes of the executives and board managing that company.

Why is Comcast doing this?

Comcast’s strategy is to offer the Fox’s shareholders a deal that’s more lucrative than the one that was initially proposed. In this case, Comcast is offering an additional $8 billion, which is known as a premium over the original purchase price.

A premium is like a bonus, it’s an amount that’s more than the original price, and it acts as a sweetener for the deal, providing shareholders with more money once the deal goes through.

Weren’t hostile takeovers a big thing in the 1980s?

You remember correctly! In the 1980s, it became popular for certain investors or companies to buy up as many shares of the company it wished to acquire, until it had a majority ownership of the target company.

This tactic is also known as corporate raiding.

The film Wall Street, which features Michael Douglas as the fictional corporate raider Gordon Gekko, who famously said, “greed is good,” put its cultural stamp on the era.

Real life examples of corporate raiders in the 1980s:

• Investor Carl Icahn is known today as a shareholder activist, but in the 1980s he was also a corporate raider who famously engineered the takeover of the now defunct Trans World Airlines, or TWA.
• Similarly, T. Boon Pickens struck fear in the heart of corporate boardrooms, in his bid to take over the petroleum giant Gulf Oil.
• Ronald Perelman engineered the takeover of makeup company Revlon for $1.8 billion in 1986.

How can companies avoid a hostile takeover?

As a way to protect themselves, some companies adopted what is known as a poison pill strategy. That’s when a company attempts to ward off a hostile takeover by giving existing shareholders the option to buy outstanding shares at a steep discount when any one entity buys more than a set percentage of the company’s stock, for example, 15 to 20 percent of outstanding stock.

In contrast, another poison pill arrangement allows shareholders to purchase the shares of the corporate raider’s stock at a deep discount–which makes the deal unattractive to the company looking to acquire the target company, because it can wind up making the acquiring company’s stock less valuable, via a process known as dilution.

So what’s happening with Comcast and Fox now?

The Comcast bid isn’t a done deal yet. In fact, Comcast had tried unsuccessfully to purchase Fox assets in November, according to reports. Shareholders must ultimately agree to the new offer.

Regulators examining the proposed Disney and Fox merger for monopoly implications may also rule against the deal, which would similarly make the Comcast takeover unlikely, on the same grounds.

The post Why So Hostile? Behind Comcast’s Bid for Fox appeared first on Stash Learn.

In the business world, a monopoly is when one company, or group of companies, controls production or sales in an entire market or sector.

Why are monopolies bad for consumers?

When one company controls an entire market or sector, it gets to set prices with little or no competition from other businesses. Robust competition is a vital component of keeping prices affordable for consumers. Competition is also vital for smaller companies to develop and thrive.

Who decides when something is a monopoly?

The FTC and the Department of Justice (DOJ) are the two main agencies that weigh in about potential mergers, and whether they violate antitrust laws. The FTC is a regulatory body that can bring enforcement actions companies and individuals. The DOJ enforces those actions in the federal courts.

Penalties for violating antitrust laws can include millions of dollars in fines, as well as jail time.

Examples of monopolies

There are two primary types of monopolies. The first, called a vertical monopoly, is when companies in different industries combine to control products and services in a single supply chain. The combined companies then own the entire manufacturing and distribution process. For example, a large car company might acquire an auto parts manufacturer, to get pricing benefits. A flour company might acquire the farms producing wheat, and the stores that sell the flour. There’s nothing wrong with such an arrangement, in and of itself. But it could be problematic if the companies involved get large and start edging out competitors.

One of the most famous vertical monopolies was American Telephone & Telegraph (AT&T), also known as the Bell System. The telephone monopoly, which produced the national telephone network and all the products that could be attached to it, was broken up into eight separate companies in 1982.

The second type of monopoly is called a horizontal monopoly, which is when companies in the same industry merge. Two banks might consider combining, for example. Or two energy companies that produce petroleum.  The more roll-ups like this that happen in a single industry, the fewer choices consumers have between products.

Standard Oil, John D. Rockefeller’s oil company, was considered a horizontal monopoly. It was broken up in 1911, into 34 different companies.

Aren’t there laws against monopolies?

The U.S. created strong anti-monopoly laws, sometimes referred to as antitrust laws, starting in the 19th century. There are three primary laws.

The first law, passed in 1890, is called the Sherman Act, which essentially outlaws monopolistic and anti-competitive practices by corporations. Congress soon followed up with the Federal Trade Commission Act, which created the Federal Trade Commission (FTC), and regulates against anticompetitive, deceptive, and unfair business practices.

A further law, called the Clayton Act, deals with anti-competitive pricing and allows trade unions to organize to prevent monopolistic mergers.

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T-Mobile and Sprint, the nation’s third and fourth-largest mobile providers respectively, hope to create a new telecom giant, with a reported 100 million subscribers and plans to build a state-of-the art network for consumers, according to a T-Mobile press release.

The newly combined company would instantly become the second-largest mobile carrier, after Verizon, which has a reported 116 million customers. AT&T has 93 million customers, according to reports.

The details

The merged company, which will be called T-Mobile according to a company press release, is likely to be a strong competitor as the Federal Communication Commission (FCC) gets ready to auction off airwaves for an upgraded 5G network in the fall, experts say. Such networks are expected to be up to 100 times faster for consumers.

Sprint is owned by the Japanese conglomerate SoftBank. T-Mobile is owned by German telecom company Deutsche Telekom.

Would it be a monopoly?

Big mergers like this have sparked monopoly concerns in the past.

The newly combined company would instantly become the second-largest mobile carrier, after Verizon

Sprint and T-Mobile had floated a merger in 2014. Those plans, however, were thwarted by regulators who feared the combined company could create a monopoly. Similarly, in 2011, AT&T similarly attempted to merge with T-Mobile, a move that was also blocked by regulators.

A merger between T-Mobile and Sprint, if approved by regulators, would leave the the U.S. telecom market with just three big players, sparking fears of a monopoly. A monopoly, generally speaking, is when one company has a lockdown on a market and can control pricing for its products and services without fear of competition.

The merger between Sprint and T-Mobile must be approved by the Federal Trade Commission and the Department of Justice.

Read more about monopolies.

Why are so many companies merging these days?

Mergers and acquisitions–when one company purchases another for a market advantage–are happening in numerous industries.

Companies acquire or merge with other companies to make themselves stronger market competitors. They will often merge with companies that have something they need–such as a product or service, or even customers.

Big drug-makers, for example, have been acquiring biotech companies that have developed promising treatments for cancer and other diseases. Similarly, healthcare companies and prominent retailers and drug store chains, have announced plans to merge in recent months.

Could this merger affect my cell phone bill?

Possibly. One of the chief fears about the merger, experts say, is that the combined companies may jettison their previous commitment to being a lower cost provider for cost-conscious consumers, according to reports.

“The biggest problem with this merger is that these two companies are each other’s biggest competitors for serving middle-income, budget-constrained wireless customers,” Gene Kimmelman, a former senior antitrust official at the DOJ told the New York Times.

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Qualcomm is one of the largest chip manufacturers in the U.S. Broadcom is headquartered in Singapore, but is exploring a move to California. It’s also among the world’s biggest chip makers, along with companies like Samsung and Intel.

What’s a microchip?

Microchips are the small packets of circuits that are used for computing. Acting as semiconductors, microchips are used in all sorts of consumer products, from automobiles to smartphones, and even appliances. They’re small and are assembled through a complex manufacturing process.

In 2017, total microchip sales totaled more than $412 billion globally according to industry data.

Trump steps in

Presidents don’t often step in to block a corporate merger. In fact, this is only the fifth time it has ever happened. Nevertheless, it’s the second attempt by the Trump administration. The justice department also sued to stop a proposed merger between AT&T and Time Warner, reportedly over antitrust concerns.

In 2017, total microchip sales totaled more than $412B globally according to industry data

But the Broadcom-Qualcomm deal? The president’s motivations are less clear, which is what has many people wondering what the implications are.

What does this have to do with national security?

The Trump administration’s primary concern, as it relates to national security, has to do with the importance of the microchip industry. Chips can be found in almost everything these days — from refrigerators to smartphones — and a merger between Broadcom and Qualcomm potentially allows economic adversaries like China to have more influence over the industry.

Many of the world’s biggest chip manufacturers are in Asia, including countries like South Korea, Taiwan, and Japan.

The fear is that if other countries have too much sway over chipmakers, they’ll in turn have power over American tech companies. If the world’s chipmakers were all concentrated in Asia, for example, security flaws or a shortage (artificial or otherwise) could be disastrous for businesses and consumers in the U.S.

Qualcomm also plays an important role in supplying technology to the military, and regulators have expressed concern that Broadcom could gut the company’s research and development teams, putting America at a disadvantage.

Broadcom has disputed the Trump administration’s claims. It said in a statement earlier this week, it “strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns,” according to CNN. The company had also previously offered to set up a $1.5 billion fund to train U.S. engineers, and to establish the U.S. as leader in microchips.

Why should it matter to you?

On the surface, it wouldn’t seem like the scuttling of one merger between two companies would mean much. But it was the manner in which it was done, and the potential for retaliation by foreign governments, that could lead to issues, according to industry experts.

By sinking the Qualcomm deal, the Trump administration could hurt U.S. interests abroad, according to industry analysts. U.S. companies, for example, could similarly be blocked from acquiring companies overseas, according to reports.

The Trump administration has already stoked fears of a trade war after imposing tariffs on steel and aluminum, and his decision to block this deal is adding to experts’ fears. China, for example, could hit back, by drawing the U.S. into a trade war. Even though Broadcom, in this case, isn’t a Chinese company, it does have ties to China.

And just a whiff of a trade war has the power to potentially sink the markets and hurt investors.

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On Monday, Keurig Green Mountain Inc., the maker of K-cup coffee pods, announced it would purchase soft drink maker Dr Pepper Snapple in a deal worth $21 billion, according to Reuters.

Through the merger, Keurig instantly becomes a big challenger in the soft drink market dominated by Pepsi and Coca Cola, and will have annual revenue of approximately $11 billion, Keurig said.

The newly combined company will be called Keurig Dr Pepper. It will own popular brands including 7Up, Snapple, Sunkist, Motts, A&W Root Beer, and Green Mountain Coffee, among many others.

“The combination of Dr Pepper Snapple and Keurig will create a new scale beverage company which addresses today’s consumer needs, with a powerful platform of consumer brands and an unparalleled distribution capability to reach virtually every consumer, everywhere,” Bob Gamgort, chief executive officer of Keurig said in a statement.

The merger comes at a time when beverage makers of all kinds are hoping to branch out into drinks with less sugar, including coffees, teas, and sparkling juices, according to analysts. It also comes at a time when Keurig’s owner, an investment group called JAB, is hoping to move beyond fast food and coffee, according to industry reports.

Although the new Keurig will be big competition in the soft drink industry, it is still dwarfed by Coca Cola and Pepsi, which have revenue of $41 billion and $63 billion respectively for the full year 2016, the most recent year for which data is available, according to reports.

What’s reverse merger?

JAB, a German-owned entity controlled by the billionaire Reimann family, purchased Keurig in 2015 for $14 billion. It also owns Krispy Kreme Donuts, Panera Bread, and Peet’s Coffee.

Keurig plans to combine Dr Pepper Snapple in what’s known as a reverse merger. Typically, when companies merge, both entities are either public or private. In this case, Keurig is private and Dr. Pepper Snapple is public. Keurig will essentially become a public company by purchasing the majority of the public company’s shares.

Fun fact:  Dr Pepper Snapple shareholders will receive something called a premium to the value of the stock at the time of the deal. A premium is an amount worth more than the current value, meant as an incentive to shareholders who own Dr Pepper Snapple’s stock. Dr Pepper Snapple shareholders will get $103.75 per share, and own 13% of the combined company, Keurig said.

Mergers typically affect stock prices, and news of the deal sent Dr Pepper Snapple Stock up 24% to $118.87 by mid-day Monday, according to Yahoo Finance.*

The deal, which is subject to the approval of federal regulators, is expected to close by the second quarter, Keurig said.

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Meredith, based in Des Moines, Iowa, is the publisher of family-oriented titles such as Better Homes and Gardens, Family Circle, and the website AllRecipes.com, among other publications. It will spend $2.8 billion in cash to acquire Time, publisher of newsier titles including Fortune, People, Sports Illustrated, and Time magazine.

The combined companies will reach 200 million consumers, according to Meredith, and the purchase price represents a 46% premium to Time Inc.’s most recent stock value, according to reports. A premium is an amount paid above the actual value of a company.

By paying more than Time Inc. is worth, Meredith is reportedly suggesting to the market there is untapped value inherent in combining the two companies.

Meredith is considered by some to be more diversified than Time, because it owns 17 local television stations in addition to its magazines and websites

“The vision is the absolute premiere media company in the country with premium branded content on every platform,” Stephen Lacy, Meredith’s chairman and chief executive told the Wall Street Journal in a recent interview. “We’re very excited to bring these businesses together.”

Here are the highlights:

Some history

Time Inc., based in New York, was once one of the most storied publishers in the industry, producing some of the best-known magazine brands, including Life magazine. It was founded in 1922 by Henry Luce and Briton Hadden with an $85,000 investment.

Their goal was reportedly to present news in a new narrative and pictorial format for an increasingly urban and busy population. Time was formerly one of the largest publishers in the world. Today it publishes 100 titles, and claims to have 30 million print subscribers.

Meredith launched in 1902 under the guidance of publisher Thomas Meredith. It’s initial publication was Successful Farmer. It’s most successful title today is Better Homes, which has a circulation of 7 million, according to the New York Times.

Industrialists Charles and David Koch reportedly provided $650 million for the purchase through their private equity fund. The brothers have previously expressed interest in buying a media company to serve as a platform for their conservative political opinions, according to media experts.

Complicated relationships

This isn’t the first time Time Inc. has either merged or been acquired by another company.

In 1989, Time Inc. merged with Warner Communications, to form the media conglomerate Time Warner. Time Warner then spun off Time Inc. in 2014. A spin off is when a company separates out one of its units, frequently with the intention of selling it to another company or operating it independently.

The Internet company AOL also purchased Time Warner in 2000 for $162 billion. The merger, which analysts ultimately considered a disaster, ended in 2009 when the two companies split up.

This time around, things are a bit different. The traditional media industry, which relies on print publications like magazines and newspapers, is in a state of decline. Fewer consumers turn to print publications for information, as more consumers have gotten their news from online and video sources.

Although Time Inc. had revenue of $3 billion in 2016, it had no profit. Instead, it had a loss of $48 million, according to its most recent annual report. That means the company brought in billions of dollars in sales, primarily from advertisers. However, the cost to operate the business was greater than the cash it took in.

Meredith is considered by some to be more diversified than Time Inc., because it owns 17 local television stations in addition to its magazines and websites. It had $1.7 billion of revenue according to its 2016 annual report, and profit of $33 million.

What happens to stock price during a merger?

News of mergers and acquisitions frequently affects stock price. Time Inc.’s stock price has fallen 46% in 2017. In early November, the company’s share price was less than $11. But news of the acquisition by Meredith sent Time Inc.’s price up to $18.43 by mid-day on Monday. Meredith’s stock price also rose 13% to $68.91 on Monday.

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