What You Can Learn from AT&T's T-Mobile Troubles

Perhaps it's the nature of the beast, but there's typically a lot of happy talk on Wall Street anytime deals are announced, as was the case with AT&T's T-Mobile deal. Maybe that explains why investors appear surprised this deal is now bogged down in regulatory problems.  They shouldn't be. 

The company disclosed back in August that the Justice Department had filed a complaint against AT&T alleging that the proposed acquisition of T-Mobile would substantially lessen competition and likely raise prices.  This is what we call a risk that hides in plain sight.  These are the risks frequently blown-off by investors, often to their chagrin later.  But this stuff matters. 

We took that August disclosure to be of sufficient concern that it contributed to our changing the risk rating on AT&T from Medium Risk - Positive Bias to Medium Risk - Negative Bias on 27-Sep-2011. Our rationale on this is simple: 

• Management will always know more than you. 
• Management also hates saying anything bad. 
• When management does disclose something bad, as happened here, a safe default is to assume it's material.
• Material events that cannot be analyzed, or are glossed over with happy talk, are risks that can come back to bite you later.

For more on this take a look at the nice write-up by John Dvorak at Marketwatch.

Like they say, talk is cheap.  Happy talk even cheaper.  But when it comes to investing in public companies, what management and their lawyers deem necessary to put in writing carries the day for the prudent investor.