Courtesy of Benzinga.
AT&T, Inc. (NYSE: T) and T-Mobile USA confirmed on Thursday the what analysts and investors had gathered in the preceding two days, that their proposed merger is likely not happening. They are withdrawing their application before the FCC to join their operation. AT&T also said it is setting aside $4 billion in the fourth quarter to cover the potential resulting fee to T-Mobile USA.
Both companies used Thanksgivings Day to [attempt to] announce their action in an orderly fashion as U.S. markets have a shortened trading day. Both companies said they would still pursue approval in the antitrust case, but that they were, at least for the time being, resting their case before the FCC. The $4 billion AT&T is preparing in the eventuality of failed attempts to revive the merger includes $3 billion in cash and $1 billion in spectrum assets, pledged to T-mobile when the deal was announced in March.
Two days before, the Federal Communications Commission became the second regulatory body to apply the breaks by proposing to refer the merger before an administrative court as did not meet the Commission’s standards for approval. Specifically, the FCC has concerns to what it considers “massive job losses” resulting from the merger, which is supported by AT&T’s confidential submissions before the commission. Earlier in August, the Department of Justice stepped in with antitrust concerns as competition would be severely limited in a three-carrier national stage.
AT&T had hoped to acquire T-Mobile in order to fortify its network coverage and quality to better compete with number-one Verizon Wireless Inc. (NYSE: VZ). The company has faced increased pressure, especially as it lost its advantageous exclusive arrangement to carry Apple’s iPhone. By adding T-Mobile’s approximately 33 million subscribers, analysts expected AT&T to get better pricing power for hot hardware from manufacturers.
T-Mobile USA has even more to lose from the merger’s failure. Since March, the company had frozen its negotiations with smartphone providers so as not to interfere with its wold-be future suitor, AT&T. As such, it is left with a lot less enabling it to fend for itself in the likely scenario of carrying on competition as a feeble fourth national carrier. Its German parent company, Deutsche Telekom, has made it known it is no longer interested in pursuing infrastructure investment in the U.S., and would as soon prefer to exit the market altogether. The Germans may decide to take the break-up fee in cash and assets from AT&T and attempt to package T-Mobile USA for a spin-off. Sprint Nextel has been mentioned as a potential partner for T-mobile, but its suitability with T-mobile is strategically far less feasible, and as such would command a much lower price.
Chips have yet to fall on how the market will receive the developments. T was down 1.9 percent on Wednesday’s trading, markets were closed on Thursday, and a short trading day on Friday will likely not have enough volume to validate an opinion. Verizon Wireless Inc. (NYSE: VZ) and Sprint (NYSE: S), arguably standing to benefit from the deal not materializing, were also down on Wednesday, by 2.3 and 5.3 percent respectively.
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