The proposed $39 billion merger of
AT&T Inc.
(
T
) and T-Mobile USA seems unlikely. AT&T plans to take a $4
billion charge in the fourth quarter against its takeover, showing
increased chances of failure rather than success.
Previously, upon the announcement of the merger deal in March,
AT&T agreed to pay T-Mobile $3 billion in cash and $1 billion
for spectrum access, should the deal fail.
The proposed transaction is also regulatory attack. First the
Department of Justice (DoJ) and more recently the Federal
Communications Commission (FCC) blocked the proposed takeover
citing concerns of unfair competition, layoffs, higher prices,
lower innovation and investments in the industry.
Nevertheless, AT&T was keen to bring T-Mobile under its fold
in a deal that would to be the largest in the wireless industry
since 2004. The second largest mobile phone company would continue
to pursue antitrust approval from the DoJ but withdrew its
application from the FCC. Notably, the FCC approval would be absurd
should DoJ block the transaction.
The company is seeking to shed some assets or spectrums to rival
companies in order to salvage its ambitious $39 billion purchase.
AT&T would now divest a significantly large portion of assets
than previously expected. Though the exact amount of disposal is
not determined, it could be as much as 40% of T-Mobile assets,
according to
Bloomberg
. AT&T could bring its asset sale proposal in the DoJ hearing
on November 30.
AT&T affirmed that the sale of assets would minimize the
merger concerns, helping it to gain necessary approvals. Divesture
talks with several U.S. wireless carriers such as
MetroPCS Communications Inc.
(
PCS
),
Leap Wireless International Inc.
(
LEAP
),
CenturyLink Inc.
(
CTL
),
Dish Network Corp.
(
DISH
) and
Sprint Nextel Corp.
(
S
) are in preliminary stages. Even if AT&T disposes assets to
its rivals, it may still not be able to win the DoJ nod.
Ironically, the collapse of the deal might weigh on the smaller
U.S. wireless rivals as they run the risk of losing opportunities
to buy T-Mobile assets. The failure of the deal might turn T-Mobile
into a more hostile competitor for urban prepaid users. T-Mobile,
which is the fourth largest wireless carrier, is struggling to
compete against
Verizon Communications Inc.
(
VZ
), AT&T and
Sprint Nextel Corp.
(
S
). The company is badly in need for additional spectrum to build
the fourth-generation (4G) network, the demand for which is
currently rapidly increasing.
While we await the final decision on this much-hyped merger, we
prefer to maintain our long-term Neutral recommendation on
AT&T. The company retains the Zacks # 3 (Hold) Rank for the
short term (1-3 months).
CENTURYLINK INC (
CTL
): Free Stock Analysis Report
DISH NETWORK CP (
DISH
): Free Stock Analysis Report
LEAP WIRELESS (
LEAP
): Free Stock Analysis Report
METROPCS COMMUN (
PCS
): Free Stock Analysis Report
SPRINT NEXTEL (
S
): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
Zacks Investment
Research