By Sarah Morgan
The news that the Justice Department is suing to stop AT&T (T) from buying T-Mobile sparked an immediate reaction for telecom investors, as hares of AT&T dropped 5% over the last two days and rivals got a boost. But for a particular group of mutual fund managers and fund shareholders – those who look to merger activity to offer outsized returns – the suit raises bigger questions: Does the M&A world now have a tougher cop on the beat? And if so, is this strategy, at least temporarily, less persuasive?
We asked three investment pros for their take. Bottom line: Business as usual. Here’s what they told us:
Roy Behren, co-portfolio manager of the $5 billion Merger Fund (MERFX): It does seem to us that the Justice Department is trying to send a message that things have changed under the Obama administration versus the Bush days. A strict regulatory environment could definitely have a chilling effect on deal activity. But for a variety of reasons, there are many incentives for merger activity to continue to pick up going forward. As long as the parties are aware of the rules of the game, they can proceed.
Mario Gabelli, co-portfolio manager of the $576 million merger-focused Gabelli ABC fund: The government is doing what it is supposed to do on this particular issue. It’s business as normal. From an arbitrageur’s point of view, when a company announces, you look at things like antitrust, an ability to finance, and so on. This is just another item on the checklist. But there’s no question that you will have to tiptoe a little more into the more speculative deals, with maybe a token position.
Michael Hodel, stock analyst with Morningstar: There is a history of telecom deals being blocked by the government, and the T-Mobile-AT&T deal faced a significant set of hurdles to approval. Any set of regulators would have looked at this deal and had a lot of problems with it. It’s not like this is the first time in history that the DOJ has stepped in to block a deal.