Earlier today, US Government sued and filed an Antitrust complaint to block the AT&T takeover deal of T-Mobile. There are four major wireless carriers currently in US. Verizon (VZ) enjoying the top spot, AT&T (T) the second largest followed by Sprint Nextel (S) at third and T-Mobile (DTE) at fourth spot.
“AT&T’s elimination of T-Mobile as an independent, low- priced rival would remove a significant competitive force from the market,” the U.S. said in its filing. The merger would make AT&T no. 1 US Carrier ahead of Verizon. Now there are some cancellation fees associated if the deal doesn't go through. AT&T would have to pay Deutsche Telekom (DTE) $3 billion in cash. It would also need to provide T-Mobile with wireless spectrum in some regions and reduced charges for calls into AT&T’s network, making a total package valued at as much as $7 billion, according to Deutsche Telekom earlier this month.
No wonder AT&T shares are falling more than 4%, down to 28.28 (-4.52%) as of this writing. The associated cancellation fees give AT&T the incentive to fight the suit and make their case in favor of the deal. The FCC has not made any decision in favor or against the deal. This whole scenario makes the situation a big mess.
The bright side is AT&T's current dividend yield of more than 6%. In the worst case scenario, AT&T still remains a no. 2 Carrier, needs to pay up to $7 Billions in charges for cancellation. AT&T still needs to improve their coverage but in GSM technology based network they are still going to be the leader. There is going to be a new iPhone coming soon, definitely for AT&T network.
I would recommend that the half-and-half strategy be applied to AT&T (T). The half-and-half balances the potential reward of buying stocks with the risk of buying while the stock trend is uncertain. If you want to own 200 shares of a stock, buy 100 shares and sell one put. If the stock is put to you, you'll buy more shares, but at a lower price. As a bonus, you will have earned the premium on the put sale. The risk would be if the stock races higher and you miss the gains from the additional shares not bought. But then you would have gains in the stock you already bought.
The investor would buy 100 shares of AT&T (T) at $28.00 and sell one January $26.00 put for $1.30ish. If the stock is put to that investor because it falls below $26, the investor will buy an additional 100 shares at $24.70. This effectively lowers the average price of the 200 shares to $26.35 each.
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