By Diane Bartz and Greg Roumeliotis
(Reuters) - A U.S. district judge is expected to rule in favor of allowing Sprint and T-Mobile US (NASDAQ:TMUS) to merge over the objections of a group of state attorneys general, according to two sources familiar with the matter.
Shares of Sprint surged 69% in Monday's after-hours trade and T-Mobile stock rose 8%. Shares in T-Mobile parent Deutsche Telekom (DE:DTEGn) were up 4.2% at 0917 GMT on Tuesday.
U.S. District Court Judge Victor Marrero is expected to make his decision public on Tuesday, one source said.
Deutsche Telekom confirmed Tuesday as the expected date.
"We remain confident that the judge will decide in favor of the transaction," said Europe's largest telecoms company by revenue.
Approval of the deal would be a high profile defeat for state attorneys general, led by New York and California, who had argued that a merger of the No. 3 and No. 4 U.S. wireless carriers would lead to higher prices, especially for customers who use prepaid plans popular with people with poorer credit.
The deal has already been approved by federal regulators.
The companies had said the deal was needed to help them build out next generation of wireless, called 5G, and better compete with sector leaders Verizon Communications Inc (NYSE:VZ) and AT&T Inc (NYSE:T).
Executives from the companies, including T-Mobile Chief Executive John Legere, testified during the trial that Sprint's business was deteriorating and would not survive if it did not merge with T-Mobile.
The two companies are expected to start talks on renegotiating the terms of their $26.5 billion merger in the next few days, two sources said.
Deutsche Telekom is keen to cut the price of the deal, arguing that Sprint's fortunes have deteriorated since they inked their agreement, the sources added.
However, Sprint, in which Japan's Softbank Group has a major stake, is expected to argue that T-Mobile needs Sprint in order to grow its cashflow and to boost its capacity using its spectrum, according to the sources.
There is no certainty that there will be a renegotiated deal, the sources cautioned.
The court did not immediately respond to a request for comment. Sprint and T-Mobile both declined to comment.
One merger opponent, Gigi Sohn, a former telecoms regulator now at Georgetown Law, tweeted her displeasure with reports of the decision. "If #antitrust law doesn't even block a 4-3 merger like this, we need to start from scratch," she tweeted, referring to the market shrinking to three from four competitors. "I'll have more to say tomorrow after I read the judge's decision (through my tears)."
While a group of states decided to fight the deal in court, the federal government approved it with conditions, a decision which remain in effect.
The U.S. Justice Department approved the deal in July after the carriers agreed to sell some assets to satellite provider Dish Network Corp, which would create its own cellular network to ensure that there would still be four competitors in the market. The Federal Communications Commission signed off on the deal in October. Dish shares rose 2% after hours.
The states maintained that Dish was ill-equipped to become a competitive fourth wireless carrier.
The Wall Street Journal earlier reported that the court was expected to approve the deal on Tuesday.
