AT&T & T-Mobile: Nothing Ventured, Nothing Gained
DALLAS (
) -- All the
suggest that
AT&T's
(T) - Get Report
proposed $39 billion merger with
T-Mobile USA
is hitting the rocks, but things could be worse for the U.S. telecom giant.
On Thursday, AT&T
it expects to take a $4 billion pre-tax charge in the fourth quarter to reflect breakup fees associated with the controversial deal, which has run into
from the Federal Communications Commission and the Department of Justice.
AT&T's proposed $39 billion merger with T-Mobile USA looks increasingly unlikely. |
AT&T and T-Mobile's parent company,
Deutsche Telekom
(DT) - Get Report
also withdrew their applications for FCC approval of the deal earlier this week, focusing, at least for now, on obtaining antitrust clearance from the DoJ.
While the breakup fee suggests that the deal's prospects look bleak, this is hardly the end of the world for AT&T, according to Bernstein Research analyst Craig Moffett
"I don't know if this story works out so badly for AT&T," he explained, during an interview with
CNBC
on Friday. "While
the break-up fee sounds like a large amount of money, this is a very large company -- this is a couple of months of cash flow from
the AT&T wireless business."
Moffett characterized AT&T's attempted purchase of T-Mobile USA as a "calculated risk" designed to increase the pressure on arch rival and market leader
Verizon
(VZ) - Get Report
.
There had also been chatter that the breakup package could be
at $6 billion, so the lower breakup fee can be seen as something of a positive.
"For AT&T, this represents an incremental step towards resolution, and arguably at a marginally lower break-up cost than some had feared," explained Moffett, in a research note released on Thursday. "The earlier this issue is resolved, the better."
In
, AT&T said the $4 billion charge would include $3 billion in cash and $1 billion in spectrum.
Investors largely shrugged off news of the anticipated $4 billion breakup charge, perhaps reflecting growing perception of the deal as a long shot. Shares of the no. 2 U.S. telecom firm dipped just 3 cents, or 0.11%, to $27.52 on Friday as the S&P 500 gained 0.13%.
AT&T reported solid
results last month, meeting Wall Street's earnings estimate while dipping below the consensus revenue target as customers delayed their
Apple
(AAPL) - Get Report
iPhone purchases. AT&T also added 2.1 million wireless subscribers to pass the 100 million mark.
The company, however, predicted blockbuster smartphone sales in the fourth quarter, driven partly by Apple's new iPhone 4S.
Robin Bienenstock, another analyst at Bernstein Research, believes that T-Mobile's parent company, Deutsche Telekom, may seek out alternative deals, possibly in the cable sector.
"In the absence of another deal with AT&T, we think the most likely deal for Deutsche Telekom would therefore be with the cable industry," she explained, in a note. With T-Mobile likely to run into real spectrum constraints as early as 2012, and no spectrum auctions due in the U.S. until 2014/15, Beinenstock believes that a spectrum deal with
Comcast
(CMCSA) - Get Report
or
Time Warner Cable
(TWC)
would be appealing to the German firm.
--
Written by James Rogers in New York
.
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.
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