AT&T Cash, Breakup Fee Were Said to Clinch T-Mobile USA Over Sprint Nextel
Deutsche Telekom Chief Financial Officer Timotheus Hoettges
Hannelore Foerster/Bloomberg
Deutsche Telekom Chief Financial Officer Timotheus Hoettges said, “The breakup fee was very important to us in the negotiations.”
Deutsche Telekom Chief Financial Officer Timotheus Hoettges said, “The breakup fee was very important to us in the negotiations.” Photographer: Hannelore Foerster/Bloomberg
March 21 (Bloomberg) -- Paul Glenchur, an analyst at Potomac Research Group, discusses the outlook for regulatory approval of AT&T Inc.'s planned purchase of Deutsche Telekom AG's T-Mobile USA unit for $39 billion. Glenchur speaks from Washington with Margaret Brennan on Bloomberg Television's "InBusiness." (Source: Bloomberg)
March 21 (Bloomberg) -- Todd Rethemeier, an analyst with Hudson Square Research, talks about AT&T Inc.'s agreement to buy T-Mobile USA from Deutsche Telekom AG for $39 billion and prospects for U.S. government approval. Rethemeier talks with Carol Massar and Matt Miller on Bloomberg Television's "Street Smart." (Source: Bloomberg)
March 21 (Bloomberg) -- Rebecca Arbogast, analyst with Stifel, Nicolaus and Co., discusses AT&T Inc.’s $39 billion purchase of Deutsche Telekom AG's T-Mobile USA unit. The acquisition may take a year to gain regulators’ approval even if AT&T pledges to sell assets and expand rural coverage. Arbogast talks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)
March 21 (Bloomberg) -- Michael Nelson, analyst at Mizuho Securities USA Inc., discusses AT&T Inc.'s agreement to buy Deutsche Telekom AG's T-Mobile USA unit for $39 billion in cash and stock. Nelson talks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
AT&T Inc. (T) beat out Sprint Nextel Corp. (S) with a $39 billion offer for T-Mobile USA after agreeing to pay mostly cash and a higher-than-average breakup fee, said three people with knowledge of the matter.
AT&T stepped up talks in past weeks to reach an agreement with Deutsche Telekom AG (DTE), T-Mobile USA’s owner, said the people, who declined to be identified because the negotiations were private. Sprint had discussed paying a lower price for T-Mobile USA and couldn’t agree with Deutsche Telekom on a valuation, the people said.
Sprint and Deutsche Telekom had been holding on and off discussions about a stock transaction that would give the Bonn- based company a major stake in the combined entity, the people said. AT&T, the second-biggest U.S. wireless provider, clinched the deal by paying about $25 billion in cash for T-Mobile USA and offering a $3 billion breakup fee, according to the people. The next step will be clearing regulatory hurdles.
“The breakup fee was very important to us in the negotiations,” Deutsche Telekom Chief Financial Officer Timotheus Hoettges said on a conference call today. “In the intensive discussions, with lawyers, economists, we concluded that we could be optimistic that we could get regulatory approval.”
Deutsche Telekom, which will also get a stake in Dallas- based AT&T, pushed for a bigger cash component in the deal, one person said. Sprint, which was unaware that Deutsche Telekom was also talking to AT&T, learned yesterday that the German company was selling the unit to its rival, said one of the people.
Industry Altered
Bill White, a spokesman for Overland Park, Kansas-based Sprint, declined to comment on the company’s involvement. A combination of AT&T and T-Mobile would result in two companies controlling almost 80 percent of the U.S. wireless market for contract subscribers, Sprint said in a statement.
“The combination of AT&T and T-Mobile USA, if approved by the Department of Justice and Federal Communications Commission, would alter dramatically the structure of the communications industry,” Sprint said. “The DOJ and the FCC must decide if this transaction is in the best interest of consumers and the U.S. economy overall, and determine if innovation and robust competition would be impacted adversely and by this dramatic change in the structure of the industry.”
AT&T anticipates regulators will require it to divest subscribers or wireless spectrum, or both, as a condition to approving the purchase of T-Mobile USA, two people said.
Breakup Fee
Deutsche Telekom was engaged in talks about the future of T-Mobile USA with five different parties at the same time over the last couple of months, CFO Hoettges said on the conference call, without offering details. He said the agreement to sell the unit to AT&T was the best solution.
The German company started talking with advisers about its options more than a year ago and concluded that a strategy to keep T-Mobile independent in the U.S. wasn’t going to generate the most shareholder value, one person said. Deutsche Telekom and its advisers also weighed potential partnerships with Clearwire Corp. and LightSquared Inc., the person said.
AT&T Chief Executive Officer Randall Stephenson said the company had been in discussions with Deutsche Telekom for about three months.
“We studied this thing extensively over the last few months and we’re very confident it will be approved,” Stephenson said in an interview yesterday. “Very few deals offer this kind of synergy.”
Code Names
The companies used automotive-themed code names as they worked on the deal: AT&T was Tesla, Deutsche Telekom was Daimler and T-Mobile was Mercury, one person said.
Knowing the deal would face regulatory obstacles, Deutsche Telekom negotiated for AT&T to pay the $3 billion and give it rights to some wireless spectrum if the deal can’t be completed, the people said. The reverse breakup fee is about 7.5 percent of the total purchase price, while the typical fee in takeovers is often closer to 3 percent.
AT&T offers T-Mobile USA a network that is more compatible than Sprint’s and plans to expand its high-speed wireless technology as part of the purchase. AT&T will offer the service to an additional 46.5 million people, helping achieve an FCC goal of making broadband available more widely, the company said.
Deutsche Telekom and AT&T’s boards approved the deal yesterday and put out a press release hours later.
AT&T was advised by JPMorgan Chase & Co. (JPM), Greenhill & Co. and Evercore Partners Inc. on the deal. Morgan Stanley, Deutsche Bank AG, and Credit Suisse Group AG are advising Deutsche Telekom. Goldman Sachs Group Inc. (GS) advised Sprint.
To contact the reporters on this story: Serena Saitto in New York at ssaitto@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net.
To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net.
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