U.S. regulators say AT&T’s takeover of T-Mobile USA would destroy jobs and limit competition down to three. Applications to the DOJ and U.S. Federal Communications Commission are temporarily withdrawn but AT&T and T-Mobile owner Deutsche Telekom said to continue to pursue the sale. AT&T faces a $4 billion charge should the takeover fail and will be a blow to CEO Randall Stephenson who confidently offered a big break-up fee to Deutsche Telekom in March.
FCC holds the right to approve application withdrawal and determines how amended application can be resubmitted. The approval may be futile should the DOJ disapprove but AT&T and Deutsche Telekom would seek the FCC process once DOJ approval is secured. Analysts said the merger seems unlikely to happen. They said taking the $4 billion charge was an indication of chances of failure. Deutsche Telekom shares at 8.69 euros were down 0.6%, its advisers facing possibly up to $150 million in fees. Meanwhile, T-Mobile’s advisers Deutsche Bank, Credit Suisse, Morgan Stanley and Citigroup, and AT&T’s banks Greenhill & Co, Evercore Partners and JPMorgan Chase may each earn between $18 million and $36 million. The FCC said it may have an administrative law judge review the deal. The DOJ, seeing higher wireless prices as a result of the deal, sought the court to block the deal. Trial is due to start on February 13 while FCC’s administrative hearing follows after the anti-trust trial.
AT&T with 260,000 employees and T-Mobile U.S. with 36,000 employees said the merger would lead to thousands of jobs creation and replacement of 5,000 jobs brought overseas. The break-up amount, reportedly at $6 billion, is inclusive of $3 billion in cash, an assurance of T-Mobile USA spectrum and customers’ AT&T network roaming. The merger may position rank #2 AT&T to #1 above Verizon Wireless and could boost the U.S. unit to grow. An analyst said AT&T might streamline its agreement with T-Mobile USA to placate regulators. For one, it may limit its T-Mobile USA spectrum licenses purchase to let Deutsche Telekom keep its customer base and rent an AT&T network space.
Credit rating agency Moody’s believes Deutsche Telekom will assertively battle it out with AT&T to get better chances at improving its weak US position. The deal’s collapse might pressure Deutsche Telekom Chief Executive Rene Obermann to put in money, ruining his strategy to relieve him of the business. The company may need to liquidate assets. All this could result to a long setback and drive it back to its previous partner, Sprint Nextel. It was reported that Sprint tried to woo T-Mobile USA before AT&T did but there were doubts if it can fund such a purchase. Sprint knocked on debt markets’ doors for a $4 billion aid recently to pay debts. It also seeks to pay $7 billion worth of network upgrade over the 2 years and a $15.5 billion 4-year deal with Apple’s iPhone.