AT&T Tie Up

AT&T Tie-Up

Blog Date: 11/21/11

Author: Eric Haslbauer, Accounting Major

AT&T, a giant in the telecommunications industry, has been in the news the past few weeks regarding its proposed acquisition of T-Mobile. Offering $39 billion for T-Mobile, AT&T Chief Executive Officer Randall Stephenson in March announced the proposed purchase of T-Mobile, a unit of Deutsche Telekom AG However, the combination of the country's second- and fourth-largest wireless carriers would violate antitrust law and "substantially lessen competition," says the U.S. Justice Department. U.S. District Judge Ellen Segal Huvelle aims to block the deal, the largest announced acquisition of the year according to data compiled by Bloomberg. "Given the size of the cancellation fee that was negotiated into this agreement (at utmost $7billion), AT&T has the incentive to fight," said Andrew Gavil, who teaches antitrust law at Howard University in Washington. "The fact that the Justice Department is challenging the deal doesn't mean they won't negotiate a resolution at some point."

In more recent news, AT&T has signaled for the first time since March that its planned acquisition is more likely to fail than to succeed. According to the Wall Street Journal, they plan on setting aside $4 billion in this year's final quarter to cover the potential cost of the deal falling apart. Deutsche Telekom AG (AT&T and T-Mobile's parent company) pulled their application for merger approval at the Federal communications Commission in order to focus on their fight with the Justice Department, which has sued to block the acquisition. This action illustrates AT&T's growing doubt in the success of their proposed merger. Does this mean AT&T is throwing in the towel? Are they giving up?

Well according to the Wall Street Journal, AT&T insisted this past Thursday that they are not ‘throwing in the towel;' rather they are strategizing and essentially attempting to strike a settlement with the Justice Department. So, which is it? Why should AT&T keep fighting? Or why should they give up?

For AT&T, the benefits of the deal are potentially huge, indicating their desire to continue fighting for permission to merge with T-Mobile. T-Mobile uses the same network technology as AT&T allowing for easy access to larger market segment. The deal also would potentially lower prices due to the overlap of technology between the companies. Perhaps most beneficial is the fact that the deal would propel AT&T ahead of rival Verizon Wireless, making them number one cell phone service in the nation. However, AT&T has failed to anticipate the antitrust officials' concerns about the wireless industry, which is already dominated by Verizon and AT&T. The involvement of the U.S. Justice Department raises a great deal of concern, suggesting that AT&T drop their proposition.

Personally, I feel AT&T should accept the unlikelihood of their acquisition and prepare to cover the losses. Ultimately, only time will tell what is to come of AT&T and T-Mobile.