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By Christine Benz | 09-01-2011 06:10 PM

Working or Work-in-Progress?

Morningstar's markets editor Jeremy Glaser looks at whether AT&T, ExxonMobil, the Fed, and other things are really working at the moment.

Christine Benz: Hi, I'm Christine Benz for Morningstar, and welcome to the Friday Five. Labor Day weekend is upon us, and here today to discuss some situations that seem to be working or at least being worked on, is Morningstar's markets editor Jeremy Glaser.

Jeremy, thanks for being here.

Jeremy Glaser: You're welcome Christine. It never feels like work doing the Friday five with you.

Benz: So what you want to talk about today, Jeremy?

Glaser: Well, this week, I want to talk about AT&T/ T-Mobile, about ExxonMobil, Hurricane Irene, consumer spending, and finally the possibility of a third round of quantitative easing.

Benz: OK. Let's start with the AT&T/T-Mobile deal. In a lot of ways, that seems to be not working for those two. What do you think is going to work about it for someone?

Glaser: Yeah, it really is not working for them at all. In kind of a surprisingly early move, the Justice Department sued to stop the merger between AT&T and Deutsche Telekom's T-Mobile to create the largest mobile phone operator in the United States. I think, almost everyone assumed that the federal government was going to have some very big conditions on the deal, that there will be a lot of back-and-forth and they would be talking about this for a while. So the fact that they are already suing to stop it, saying that the proposed merger is uncompetitive for consumers, that T-Mobile being a scrappy upstart carrier really was driving prices down and bringing innovation, this all implies that the government wants to keep having four major players instead of just three.

So I think the real winner here is probably Sprint. Sprint has been running a distant third for some time now, and these two unbelievable monoliths of AT&T and Verizon at the front and Sprint in the back would just make it harder and harder for Sprint. So I think it's really going to work for Sprint if the deal doesn't go through. Certainly, this could still go to trial. There's still a chance that AT&T/T-Mobile deal will come to pass, but I think, this decision by the Justice Dept. is really going to make it that much more difficult.

Benz: So, do you think that job losses were in the mix here too in terms of what the Justice Department was thinking about?

Glaser: They may have been considering it, but I don't think it was a primary motivation behind blocking the deal. I think they were definitely more focused on kind of the consumer aspect about what it would mean in terms of pricing for cell phones and in terms of kind of speed to market on some new features. That seems to be what they're more focused on, more than the aggregate number of job losses that would come from some kind of combination.

Benz: Now, how about the Exxon and Rosneft deal? What's going on there and what do you think is working well at least for Exxon?

Glaser: This was kind of an incredible deal. ExxonMobil is getting together with the Russian oil company to really explore the Arctic region in Russia and to have some other joint ventures around the world. We didn't get a ton of specific details about exactly what the partnership is going to look like. It's not going to be a share swap. It's going to be investments from both sides and joint ventures in looking for these incredible amounts of oil reserves.

But the thing that's incredible is not so much this deal itself, but that a similar deal with BP fell apart just a few months ago. BP with great fanfare had announced this new deal that it was going to go into Russia and really saw this as a way to kind of remove the black eye that the firm had from the Gulf oil spill and to really show that the firm still had the ability to grow and still had the ability to make these big deals. But it turns out that it didn't. BP misread the political situation. BP misread how its other partners who are already in Russia would really feel about the firm trying to make this big move, and it really just blew up on the firm.

Now the Russian government is raiding BP's offices, looking for documents related to the deal. And at the same time, ExxonMobil kind of waltzes in after all of that happens and was able to get a deal on what industry observers think are much better terms. It just shows how good of an operator ExxonMobil is. It kind of reinforces Morningstar Exxon analyst Allen Good's view that the firm really is a best-in-class operator, and it's really a deal that could work for the firm for many years ahead.

Benz: So what's in a deal like this for Rosneft?

Glaser: Rosneft gets the expertise and experience that ExxonMobil has with exploration. When you have a company that certainly has a lot of reserves and maybe doesn't know how to get them out of the ground at the most efficient way and how to get them to market, ExxonMobil brings that expertise. Exxon also brings some capital to help make that happen, while Rosneft still get to share in the spoils of its oil wealth.

Benz: Now Hurricane Irene is obviously still a force to be reckoned with. A lot of people are still without power at this point, and there was some major destruction in a few spots, such as New Jersey and New Hampshire. But it seems like this storm was not as high-impact as many feared it would be?

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