September 23, 2011 11:34 AMWhale can have a great strategy, but even the Whale can blow it if he appears reckless, or insincere.
On Wednesday, everything the Whale did was "crazy big" (emphasis on crazy). On two separate occasions--once in the courtroom and once in the press room--Sprint betrayed its gambit, and essentially forfeited any chance of success.
In the courtroom, it would be too generous to say that the Whale took crazy risks. A "risk"--no matter how "risky"--contains the potential for reward. Lottery tickets are risky, yet real people win lotteries every day--you can win. Sprint's courtroom strategy was the equivalent of a legal "suicide bomb", damaging not only Sprint's claims, but its separate antitrust case, and that of Cellular South.
Let's set the stage. As everyone knows, on August 31st, the DoJ filed a complaint to enjoin AT&T from acquiring T-Mobile, because, the complaint alleged, the acquisition would tend to substantially lessen competition for mobile wireless services in violation of Section 7 of the Clayton Act.
Sprint filed an almost identical complaint a week later. Sprint also asked the court (both cases were assigned to the same judge) to allow it to participate in the trial planning/discovery procedures the with the government's case. If successful, this would be a big winner. It would give Sprint the ability to string case out over a much longer period of time, and give it a more controlling role in the case. Unfortunately, no court has ever joined a private plaintiff with the government in a merger injunction case (even for pre-trial purposes). This was a no win bet.
As noted in an earlier blog post, courts are very skeptical of antitrust complaints brought by competitors claiming to be seeking to protect "competition" and "consumers." Accordingly, the Supreme Court has held that private merger litigants must assert that they (vs. the general public) will suffer a specific injury resulting from the merger.
On the other hand, plaintiffs are not joined in litigation unless it is efficient for the courts to try their claims together because they are alleging common injuries as the result of the same event, or conduct (i.e., oil tanker negligently leaks oil, and multiple commercial fishermen lose business). In other words, to be joined with another plaintiff you have to be alleging substantially the same injury as a result of the same alleged illegal conduct of the defendants. Sprint did exactly that on Wednesday.
Does anyone see the problem here? For Sprint to maintain standing in its own antitrust case, they have to allege a unique, personal injury resulting from the merger. But, to be joined with the DoJ, even for discovery purposes, they have to be alleging the same injury as the result of the merger--otherwise they just bog down the government's case.
Obviously, Sprint can't satisfy both standards, which is why this tactic was so reckless. So, in the process of losing a meretricious motion, and effectively conceding its separate companion case, Sprint also destroyed whatever credibility it may have had as a witness for the government.
Why do I say this? After all, Sprint's lawyers aren't Sprint, so how could an ill-conceived legal strategy hurt Sprint's value as a witness? Well, it can't, really. This is the part where Sprint's CEO took over.
Investors Need to Know the Truth
At an "investors' conference" on Wednesday, Sprint's CEO notified investors (and, it would seem, the rest of the world) that Sprint was only kidding when it said mergers that exceed the "HHI" concentration numbers in the antitrust analysis contained in its complaint were illegal. it presented to the government and the FCC were illegal. Fair enough--it's his (and his shareholders') credibility to squander as he chooses.
But then Mr. Hesse went on to clarify, on behalf of the United States, that the government wasn't all that committed to the HHI thresholds listed in its complaint. Said differently, the elimination of T-Mobile as a "maverick" competitor wouldn't be nearly as threatening to competition--in the view of the United States--if a nice firm like Sprint were the purchaser.
Rather, Mr. Hesse explained, the government would only be concerned when the other two of the largest three firms attempted to acquire T-Mobile. You see, as Mr. Hesse clarified, the problem the government has with the AT&T merger, is unrelated to its allegations that the market is national and the number of participants would decline from 4 to 3. The government must be so excited to have a company that brags about not needing spectrum, to explain why they would be the perfect firm to take T-Mobile's capacity off the market.
I guess we have to conclude that Sprint's real concern was that if AT&T got any of the capacity it needed, AT&T might become more efficient and put downward pressure on prices. While I never drank Sprint's Kool-Aid on their opposition to the merger being motivated by concerns for the "public interest", I did drink the Kool-Aid on Sprint's Gambit.
The game was going as well as it could have for them, but they couldn't just help the "public interest" by being a witness--they had to be a "playa." Instead of waiting to see if Justice won, and then coming in as a savior for poor little T-Mo, they couldn't wait.
It's a proverb that you can get a lot done in Washington if you don't care who gets the credit. Unfortunately for Sprint, they could not abide this proverb. They had to be the Whale, the big boy in Washington, so they couldn't resist revealing themselves before the game was played out. In doing so, they busted what could have been a beautiful gambit.