AT&T Takeover of T-Mobile Close to Collapse

AT&T said it would take a $4 billion charge in case its takeover of T-Mobile USA fails, reflecting the dwindling chances for the deal seen as job-destroying by powerful political opponents.

The telecommunications group and T-Mobile owner Deutsche Telekom, said they would continue to pursue anti-trust approval for the $39 billion takeover from the U.S. Department of Justice, but withdrew for now applications to the industry regulator. Photo: So Cal Metro/Flickr

The U.S. telecommunications group and T-Mobile owner Deutsche Telekom, said they would continue to pursue anti-trust approval for the $39 billion takeover from the U.S. Department of Justice, but withdrew applications to the industry regulator, for now at least.

“AT&T Inc and Deutsche Telekom AG are continuing to pursue the sale of Deutsche Telekom’s U.S. wireless assets to AT&T,” they said in a statement on Thursday, the Thanksgiving Day holiday in the United States.

The $4 billion sum includes $3 billion in cash and a book value of $1 billion for spectrum access.

AT&T declined to comment on the timing of the announcement beyond the statement.

Both the DOJ and telecoms watchdog the Federal Communications Commission oppose the deal, which would reduce the number of national mobile carriers to three while consumers are struggling to make ends meet and unemployment rises.

AT&T’s intention to purchase T-Mobile has received blows from all sides since its announcement in March 2011, including opposition from the DOJ, the FCC and a lawsuit from Sprint. It hasn’t fallen through completely just yet, but we wouldn’t be too surprised if AT&T gives up on it even before the final Sep. 20 2012 deadline.

A senior FCC official said on Thursday afternoon, “The record clearly shows that – in no uncertain terms – this merger would result in a massive loss of U.S. jobs and investment.”

The two companies are fighting for approval on two fronts. The FCC as well as the U.S. Department of Justice are opposing the deal, and this latest development means they’ll be fighting for the DOJ’s approval first, without which the approval from the FCC would be meaningless.

The two companies announced earlier that they planned to resubmit their application to the FCC should they prevail in the DoJ case. The FCC must approve the transfer of wireless spectrum licences before the deal can be completed.

Analysts noted that even if the two companies win the DoJ court case, the FCC’s “public interest” objection is much broader and would be tougher to overcome. They also said that the language used by FCC officials this week suggested there is little room to compromise.

Robin Bienenstock, analyst at Bernstein, said: “The fat lady hasn’t sung yet … but she has taken the stage and the band has begun to play.” She pointed that such a contingent liability is a first indication from the companies that the deal is unlikely to be approved, although added that the companies were not yet ready to concede defeat.

Espirito Santo analysts said AT&T’s decision to take the $4 billion charge this quarter showed the company’s own assessment of the chances of success had fallen, causing its auditors to force the company to take the hit now.

“It tells us something about timing too — suggesting that AT&T may decide to walk away at the first opportunity (March 20, 2012) rather than waiting for the ultimate September 20, 2012 deadline,” they wrote in a note to clients.

Deutsche Telekom shares finished the day down 0.6 percent at 8.69 euros.

The companies’ advisers stand to lose a total of $150 million in fees. T-Mobile’s advisers Deutsche Bank, Credit Suisse, Morgan Stanley and Citigroup, and AT&T’s banks Greenhill & Co, Evercore Partners and JPMorgan Chase were on course to earn between $18 million and $36 million apiece, according to earlier estimates from Thomson Reuters/Freeman Consulting.

AT&T has 260,000 employees, mostly in the United States. Deutsche Telekom employs 36,000 at its U.S. unit.

AT&T argued that the T-Mobile merger could actually create tens of thousands of jobs during integration and network upgrades, and has pledged to bring back 5,000 jobs that it moved overseas — but many observers are skeptical.

“I don’t believe there’s any politician in America who’s interested in being associated with something that has a negative impact on the job situation in America,” Denmark-based telecoms consultant John Strand of Strand Consult, told Reuters. [via Reuters, MSN, Mashable and Financial Times]

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