AT&T Pulls Out T-Mobile Acquisition Deal Application From FCC, Still Pursuing Merger

Tweet

Mergers and acquisitions are a complicated deal. Recent developments in the AT&T and T-Mobile acquisition deal have forced AT&T to deal a strange hand. The company is withdrawing its application from the FCC, and is preparing to pay T-Mobile its default $3 billion payment.

The FCC recently ruled to seek an opinion from administrative law judge on whether AT&T’s proposed acquisition of T-Mobile is in the best interests of the public. Given that this might open up AT&T’s business and books to scrutiny, the company has opted for drastic measures. AT&T has withdrawn its application with the FCC for a merger with T-Mobile. According to AT&T, they are also agreeing to pay a $4 billion settlement fee, which it will be accounting for in its 4Q 2011 accountancy sheet.

It seems AT&T first wants to clear the DoJ’s antitrust case before it proceeds with worrying about all other regulatory clearances.

AT&T Inc. and Deutsche Telekom AG are continuing to pursue the sale of Deutsche Telekom’s U.S. wireless assets to AT&T and are taking this step to facilitate the consideration of all options at the FCC and to focus their continuing efforts on obtaining antitrust clearance for the transaction from the Department of Justice either through the litigation pending before the United States District Court for the District of Columbia, Case No. 1:11-cv-01560 (ESH) or alternate means. As soon as practical, AT&T Inc. and Deutsche Telekom AG intend to seek the necessary FCC approval.

But at this point, AT&T is already preparing to pay the $3 billion settlement with T-Mobile, which is a default payment if the deal does not push through. They will also be writing off $1 billion in value for the broadband spectrum that AT&T will have to give up. But the total value for T-Mobile will be close to $7 billion, since the breakup will also mean AT&T will be giving concessions to T-Mobile in the form of lower interconnection fees.

It seems a bold move, and AT&T is showing its confidence in still wanting to pursue the deal. But given that either option will be very expensive (acquisition vs. giving up). But getting ready to pay its default fee means AT&T is nearly giving up on the deal. The company earlier noted that it did not expect the DoJ nor the FCC to be roadblocks to the acquisition, although the regulatory bodies have proven otherwise. Analysts say that the likelihood of AT&T’s deal with T-Mobile will push through has gone down from 25% to 10%.

It’s certainly a step backward for AT&T, but in a statement, AT&T and T-Mobile says this is a tactical move that can help the two companies refocus on hurdling their roadblocks one at a time.

This formal step today is being undertaken by both companies to consolidate their strength and to focus their continuing efforts on obtaining antitrust clearance for the transaction from the Department of Justice.

Is this a big win for Sprint, Verizon, and other stakeholders who are against the AT&T and T-Mobile merger?