News Analysis: Both companies say they will pursue the merger, but AT&T prepares to take $4 billion charge to pay T-Mobile for failure to get regulatory approval for the $39 billion acquisition before the deadline specified in the buyout agreement.
Telekom and AT&T announced early Nov. 24 that the two companies will
drop their applications to transfer licenses for wireless spectrum
are essential for AT&T to complete the $39 billion buyout of U.S. wireless
move comes two days after the Federal Communications Commission announced that
referring the application to an administrative law judge
because of doubts
about the factual grounding of AT&T's application and doubts that the
transfer would be in the public interest.
announcement came at approximately 2:30 a.m. EST Thanksgiving morning, a major
holiday in the United States, in what some observers said was an obvious
attempt to escape attention by the news media. However, Thursday wasn't a
holiday in Germany, and
Deutsche Telekom announced the decision
at the beginning of the workday
addition to withdrawing its applications before the FCC, AT&T also
announced that it expects to recognize a pretax accounting charge of $4 billion
($3 billion in cash and $1 billion in spectrum) for the contractual breakup
fees due because it now appears inevitable that the parties will fail to get
regulatory approval for the merger by the end of September 2012.
both DT and AT&T say they plan to pursue the merger and fight the antitrust
suit filed by the U.S. Department of Justice, the withdrawal of the license
applications raises several questions. The most obvious is whether or not there
is a need for an expedited hearing with the DOJ, now that there's no obvious
need to rush, since the merger would be ineffective unless the license transfer
were to take place. The antitrust trial was placed on an expedited track at
AT&T's request. This means that the current calendar for the antitrust
hearings could be revised.
withdrawal of the license application also means that it's virtually impossible
for the AT&T, T-Mobile merger to take place within the time limit set in
the merger agreement, meaning that AT&T would have little choice but to pay
a penalty to T-Mobile. The announcement that it would be taking a pretax
accounting charge means that AT&T sees a likelihood of less than 20 percent
that the merger will be successful within the time limits. This announcement is
required by GATT (General Agreement on Tariffs and Trade).
nail is in the coffin," said Andrew Jay Schwartzman, senior vice president
and policy director of the Media Access Project, one of the organizations that
have been fighting the proposed merger. Schwartzman said that the companies
chose to withdraw their applications now so that the FCC won't move forward
with its hearing designation order that would force a hearing before an
administrative law judge. He said that before AT&T and T-Mobile refile any
license applications, they'll have to reformulate the deal to make it
acceptable to the FCC and address the public interest concerns.