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Telecom Deal Mania Yields Profits for Paulson

The housing bust may have made John Paulson rich and famous, but the global wave of M&A activity in the wireless industry is propelling his portfolio now.

Smart investments in telecoms including Sprint, Clearwire, MetroPCS and Leap Wireless have helped part of his $6.7 billion Merger Fund beat the S&P 500. The fund, which invests in possible takeover targets, has two potential big paydays coming: Vodafone, which is poised to complete the sale of its 45% stake in Verizon Wireless, and T-Mobile USA, which reportedly has new suitors including Sprint and Dish Network.

These prescient bets come with the long-predicted wave of wireless consolidation in full swing. Among the M&A announcements made last year: Sprint’s takeover of Clearwire, SoftBank’s bid for a majority stake in Sprint, and Deutsche Telekom’s buyout of MetroPCS. Deal mania has hit Europe as well, with Telefonica announcing a takeover of KPN’s German unit E-Plus.

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Regarding his position in T-Mobile, Mr. Paulson believes that Dish will fight hard to acquire the company, having lost Sprint to Softbank. If that’s the case, that could mean even higher returns for his fund, regardless of who ultimately gets the company, as T-Mobile’s value could increase with another bidding war.

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Mr. Paulson’s firm became the second-largest holder of Sprint shares because he believed that bidders would emerge.