Sunday, March 20, 2011

AT&T buys T-Mobile USA: will the deal survive FCC scrutiny unscathed?

AT&T buys T-Mobile USA for $39bn, o/w $25bn in cash (may be raised by $4.2bn, as long as DT's stake is at least 5%) and $14bn in shares (for an 8% stake). The EUR equivalent is 28bn, of which EUR 13bn is for debt reduction (31%) and EUR 5bn for extra share buy-backs. The price implies a valuation of 7.1x adjusted 2010 EBITDA.

Deutsche Telekom further refers to its continued exposure to the US market and the attractive AT&T dividend. AT&T defends the deal by referring to the extra spectrum and the increased ability to blanket the US. They also refer to an 'impending spectrum exhaust'. And they are happy to report that T-Mobile USA will be 'part of a US-based company'. AT&T expects a synergy run-rate of >$3bn from 3 years after closing, total synergies will exceed the purchase price

Here are some first thoughts, some off of Twitter, for which a hat-tip to Dean, Keith and Brough:
  • What will DT do with the proceeds, i.e. the remaining EUR 10bn (locked up in AT&T stock for 1 year after closing)?
  • What does this imply for other markets, particularly those where DT offers mobile services only, such as the UK?
  • If 4G/LTE was a dealbreaker for T-Mobile USA, what does this imply for other companies still undecided on their 4G roadmap, such as E-Plus (KPN) in Germany?
  • Bad news for LightSquared, which is bound to lose a wholesale customer.
  • What will Sprint do?
  • How will the DoJ and FCC respond?
  • AT&T may have to give up spectrum.
  • If AT&T pulls this off, Verizon Wireless will be enabled to make further acquisitions as well. Which would be bad news for Vodafone: no long-awaited dividend re-installment.
  • What would the break-up fee be? - UPDATE: $3bn + some spectrum + a roaming deal.
  • Integration may lead to bad service for the next 12 months.
  • Competion will be reduced, the market may develop oligopolistic traits.

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