AT&T Inc. (T) can lower the price it pays for T-Mobile USA Inc. if the remedies requested by regulators become too expensive, according to three people with direct knowledge of the purchase contract.
AT&T would be able to pay less than the deal’s original $39 billion value if regulators demand asset sales that surpass 20 percent of that figure, or about $7.8 billion, said the people, who declined to be identified because some contract details aren’t public. AT&T could walk away from the deal and pay T- Mobile owner Deutsche Telekom AG (DTE) a breakup fee if the concessions requested top 40 percent of that value, they said.
AT&T is fighting to salvage its bid to acquire T-Mobile and become the largest U.S. wireless operator after the Justice Department sued on Aug. 31 to stop the deal. The contract clauses may provide Dallas-based AT&T a means to get some T- Mobile assets at a lower price, even if it can’t get as many wireless customers or as much spectrum as originally planned.
“It would not be rational for Deutsche Telekom to negotiate from a point of weakness, which they would appear to be in should the existing deal fail,” Robin Bienenstock, an analyst at Sanford C Bernstein in London, wrote in a note. “T- Mobile USA could be an asset valuable to many, and with his term recently renewed as CEO Mr. Obermann has every reason to play the long game, rebuild negotiating strength through business momentum and look for better value in 18-24 months time.”
AT&T rose 30 cents, or 1.1 percent, to $28.13 at 4 p.m. in New York Stock Exchange trading and has declined 4.3 percent this year. Bonn-based Deutsche Telekom, led by CEO Rene Obermann since 2006, climbed 20 cents, or 2.5 percent, to 8.44 euros in Frankfurt.
Michael Buckley, a spokesman for AT&T, declined to comment on the contract details. Andreas Fuchs, a Deutsche Telekom spokesman, also said the company won’t comment on additional contract details.
AT&T said it will fight the Justice Department in court and has asked for an expedited hearing for the case. The company also plans to propose remedies that would make the takeover more acceptable to the agency, a person familiar with the company’s strategy said last week.
According to a March 21 regulatory filing from AT&T, the company doesn’t have to agree to divestitures and other regulatory conditions that would have an adverse effect greater than $7.8 billion. The document contains a formula to calculate the adverse effect of each divestiture of subscribers and spectrum.
The formula takes into account certain conditions, including cellular market area covered by a wireless license and spectrum megahertz, in determining whether the threshold has been reached. Depending on those variables, defined in the non- public part of the contract, the actual threshold after which AT&T can drop its bid for T-Mobile is twice the $7.8 billion stated in the public part of the filing, said one of the people familiar with the situation.
AT&T agreed to compensate Deutsche Telekom with $3 billion in cash, as well as wireless spectrum and roaming agreements if the deal isn’t completed. Deutsche Telekom has also said it will work to close the deal. The companies also need approval from the Federal Communications Commission to complete their agreement.
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