AT&T May Lose $3 Billion Bet on Washington in T-Mobile Deal

AT&T Inc. (T) would lose a more than $3 billion bet, one of the biggest such wagers ever, if regulators block the phone company’s purchase of Deutsche Telekom AG (DTE)’s T- Mobile USA.

The U.S. Justice Department today sued to quash the $39 billion takeover, the largest announced this year. AT&T, which plans to fight the suit, agreed to pay Deutsche Telekom $3 billion in cash within three business days if the deal collapses, according to a regulatory filing. The agreement also requires AT&T to give up wireless spectrum.

AT&T, which would become the largest wireless carrier in the U.S. through the deal, had offered to pay more than twice the usual breakup fee on a percentage basis to sway Deutsche Telekom. The Bonn-based carrier insisted on the fee because the deal’s failure would mean more than a year lost in which it could have sought other options for T-Mobile, Chief Financial Officer Timotheus Hoettges said in March.

“It’s a huge amount of money to pay, effectively, for nothing,” said Antony Page, a professor at Indiana University School of Law in Indianapolis. “AT&T has every incentive, if they go to court, to fight as hard as possible for this.”

The size of the fee weakens AT&T’s bargaining power with the Justice Department because the government can demand more onerous concessions than they otherwise would, he said.

Breakup Package

AT&T, based in Dallas, also agreed to hand over airwaves in 110 markets and negotiate a roaming agreement with Deutsche Telekom so T-Mobile can offer services in more areas, if the transaction fell apart. Deutsche Telekom values that entire breakup package, including the $3 billion cash amount, at as much as $7 billion, Philipp Kornstaedt, a spokesman for the German company, said this month.

Even without the transfer of assets and the roaming agreement, the fee is 7.7 percent of the total purchase price, about twice the typical amount. In more than 200 deals announced from Jan. 1, 2010, to Aug. 15, the median fee was 3.8 percent of the purchase price, according to data compiled by Bloomberg.

Among the largest in recent years was the $4.5 billion, or 7 percent, that Pfizer Inc. (PFE) agreed in 2009 to pay Wyeth if the drug company failed to obtain financing to complete a $68 billion takeover. Google Inc. (GOOG) agreed this month to pay $2.5 billion to Motorola Mobility Holdings Inc. if competition regulators block its $12.5 billion takeover offer, equal to 26 percent of the enterprise value of the deal.

To contact the reporter on this story: Zachary R. Mider in New York at zmider1@bloomberg.net;

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net.

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