Updated from Sunday, March 20
in a deal valued at about $39 billion.
If completed, the transaction would create the largest U.S. wireless carrier. AT&T and T-Mobile USA are currently No. 2 and No. 4, respectively, based on subscribers.
Deutsche Telekom shares rose about 14% in European trading early Monday. Shares of other European telecommunications firms were posting solid gains.
The two companies announced the cash-and-stock transaction in
a news release Sunday
, and said their boards had already signed off on it.
The deal could face regulatory hurdles, however: The Federal Communications Commission has expressed concern that the wireless market is growing increasingly concentrated.
Dallas-based AT&T said the the purchase will expand its network sooner than any other alternative. The company is facing an exhaustion of its current spectrum because of the the meteoric growth of broadband traffic.
The companies also said the deal will improve service quality, including voice quality, for their subscribers.
"This transaction represents a major commitment to strengthen and expand critical infrastructure for our nation's future," said Randall Stephenson, AT&T Chairman and CEO. "It will improve network quality, and it will bring advanced LTE capabilities to more than 294 million people."
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Under the terms of the deal, AT&T will pay $25 billion in cash and the rest in common stock. But AT&T has the right to increase the cash portion of the deal by up to $4.2 billion with a corresponding reduction in the amount of shares.
The number of shares that AT&T will offer will be based on AT&T's share price during the 30 days before the deal closes, with a 7.5% collar.
AT&T will finance the cash portion with its own cash and with new debt. The U.S. telecom giant said it has a commitment from
to provide it with unsecured bridge financing of $20 billion for one year.
AT&T won't assume any debt from either T-Mobile USA or Deutsche Telekom and said the deal allows for sufficient cash flow to support its dividend.
The deal is also structured so that Bonn-based Deutsche Telekom will receive an equity stake in AT&T of about 8% as well as a seat on AT&T's board.
The companies expect the transaction to be accretive to earnings (excluding noncash amortization and integration costs) in the third year after it closes.
Shares of AT&T closed Friday up 20 cents at $27.94. Deutsche Telekom's U.S.-traded shares ended the session down 15 cents at $11.83.