By Scott Moritz - Dec 20, 2011 5:30 AM GMT+0700
AT&T Inc. (T) abandoned a $39 billion takeover bid for T-Mobile USA after underestimating opposition from regulators, thwarting its ambitions to become the biggest U.S. wireless carrier.
AT&T will take a pretax charge of $4 billion to reflect cash payments and other considerations due to T-Mobile-owner Deutsche Telekom AG (DTE), according to a statement today from the Dallas-based company.
AT&T failed to convince the Justice Department, which sued to block the transaction in August, that it could remedy the market impact of absorbing T-Mobile. AT&T would have spent months in litigation to try to win court approval for buying the nation’s No. 4 mobile-phone operator in the largest acquisition announced this year. The company also faced possible opposition from the Federal Communications Commission.
“They rolled the dice and took their chances,” said Craig Moffett, a Sanford C. Bernstein & Co. analyst in New York. “In the end, it didn’t work out, but that doesn’t mean it was a mistake to try.”
AT&T’s decision came after the judge in the Justice Department lawsuit agreed on Dec. 12 to put the case on hold as the telephone company decided whether or how to revise the transaction. The delay may have made it more difficult for AT&T to close the deal by the Sept. 20 deadline.
Stephenson’s Confidence
AT&T Chief Executive Officer Randall Stephenson said in a statement today that efforts by regulators to block the deal may hurt customers and industry investment.
“To meet the needs of our customers, we will continue to invest,” Stephenson said, adding that regulators need to allow more spectrum sales and reform rules to “meet our nation’s longer-term spectrum needs.”
Stephenson said in March, when the deal was announced, that he was confident of receiving regulatory clearance. He said the combination would help improve service, speed up investment in faster networks and drive wireless expansion in rural areas. The deal would have added T-Mobile’s 33.7 million customers to AT&T’s 100.7 million subscribers, surpassing Verizon Wireless’s 107.7 million.
“They made an unprecedented move bidding on T-Mobile and appear to have miscalculated the risks and the regulatory opposition,” said Kevin Smithen, an analyst with Macquarie Capital USA Inc.
Critics of the deal said it would eliminate an aggressive price competitor, driving up subscription costs. T-Mobile’s monthly wireless plans are $15 to $50 cheaper than comparable AT&T plans, according to an analysis by Consumer Reports.
DT’s Plans
AT&T fell 0.7 percent to $28.55 in extended trading. As of the close of regular trading today, the stock had lost 2.2 percent this year. Deutsche Telekom lost 1.2 percent to 8.89 euros in Frankfurt today.
For Deutsche Telekom, the collapse of the deal leaves it with one more subscriber-losing business as the Bonn-based company confronts the fallout from Europe’s debt crisis. Deutsche Telekom had planned to use the proceeds to cut debt by 13 billion euros ($16.9 billion) and repurchase 5 billion euros of its shares. The company also needs funds to upgrade fiber and wireless networks in Germany and other European markets.
Deutsche Telekom said in a statement that its 2011 financial targets and shareholder remuneration policy won’t be affected by the deal’s termination. The company said it expects to receive the cash breakup fee by the end of the year.
AT&T and Deutsche Telekom pulled their applications to the FCC on Nov. 24, with AT&T announcing the same day that it would record $4 billion in costs this quarter to reflect the risk of the deal collapsing.
$7 Billion Breakup
The withdrawal came after FCC Chairman Julius Genachowski asked the commission on Nov. 22 to send the proposal to an agency judge for a hearing. The same move by the FCC in 2002 helped block EchoStar Communications Corp.’s acquisition of satellite-TV rival DirecTV.
According to the terms of the offer, AT&T must pay Deutsche Telekom a $3 billion breakup fee in cash, transfer radio spectrum to T-Mobile and strike a more favorable network-sharing agreement. Deutsche Telekom has valued the breakup package at as much as $7 billion.
In an effort to sell the deal to regulators and the public, AT&T vowed to honor the T-Mobile service plan prices after the merger. The company also vowed to bring 5,000 call-center jobs currently based overseas to the U.S. in the event of approval.
To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net
To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net
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