AT&T Ends $39 Billion T-Mobile Bid (Update 1)

Updated to include WSJ reports of divestiture talks and added information starting in 11th paragraph.

NEW YORK( TheStreet) -- AT&T ( T) is ending its $39 billion bid for T-Mobile after increased antitrust scrutiny made the deal untenable.

In a Monday statement, the company also announced it would take a $4 billion charge related to a breakup fee in the fourth quarter of 2011. Additionally, AT&T will enter a "mutually beneficial roaming agreement" with T-Mobile owner Deutsche Telekom.

AT&T cited objections to the by both the U.S. Department of Justice and the Federal Communications Commission as the reason for its cancellation to the merger, which would have been the biggest acquisition in 2011. The company's shares fell less than 1%, to $28.54, in after-hours trading

In dropping its bid, AT&T maintained its perspective that the deal was pro-competitive and that it would have long-term benefits for wireless consumers. Calling the U.S. wireless market "one of the most fiercely competitive industries in the world," AT&T said that its proposed combination with T-Mobile would have addressed a spectrum shortage as an increasing number of mobile consumers use high-data load smartphones.

AT&T Chief Executive Randall Stephenson said that the company will continue to invest in adding wireless spectrum in spite of the setback. "To meet the needs of our customers, we will continue to invest," Stephenson said.

"The mobile Internet is a dynamic industry that can be a critical driver in restoring American economic growth and job creation, but only if companies are allowed to react quickly to customer needs and market forces," he added.

The proposed deal would have combined the second and fourth wireless companies, creating the leading U.S. wireless provider surpassing Verizon ( VZ) in size and customers.

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For AT&T, its next immediate step in bolstering wireless service is a $1.93 billion purchase of wireless spectrum from Qualcomm ( QCOM) announced in December 2010. Monday, AT&T urged regulators to approve the spectrum purchase, which is currently pending before the FCC.

As part of the deal struck in March, AT&T agreed to pay T-Mobile $3 billion in cash and an additional $3 billion in spectrum assets and roaming agreements if the merger were to fall through.

When announcing the deal, AT&T also kept open the possibility of entering divestitures to remedy antitrust concerns. According to the deal terms, if AT&T were to divest more than $8 billion in T-Mobile assets, it could renegotiate the merger price. After previously reporting that AT&T was in talks to divest assets to Leap Wireless ( LEAP), Dish Network ( DISH) and MetroPCS ( PCS), the Wall Street Journal reported on Monday that asset sale talks had "gone cold."

Without a plan for divestitures, the deal became increasingly unlikely and lead to Monday's cancellation. In previous reports, antitrust experts told TheStreet that AT&T would potentially have to build a wireless competitor akin to T-Mobile, if the deal were to pass.

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