AT&T abandoned a $39 billion takeover bid for T-Mobile USA after underestimating opposition from regulators, thwarting its ambitions to become the biggest U.S. wireless carrier.
AT&T will take a pretax charge of $4 billion to reflect cash payments and other considerations due to T-Mobile owner Deutsche Telekom, the Dallas-based company said in a statement today.
AT&T failed to convince the Justice Department, which sued to block the transaction in August, that it could remedy the market impact of absorbing T-Mobile. AT&T would have spent months in litigation to try to win court approval for buying the nation's No. 4 mobile-phone operator in the largest merger and acquisition announced this year globally. The company also faced possible opposition from the Federal Communications Commission.
"They rolled the dice and took their chances," said Craig Moffett, a Sanford C. Bernstein & Co. analyst in New York. "In the end, it didn't work out, but that doesn't mean it was a mistake to try."
AT&T's decision came after the judge in the Justice Department lawsuit agreed Dec. 12 to put the case on hold as the telephone company decided whether or how to revise the transaction. The delay may have made it more difficult for AT&T to close the deal by the Sept. 20 deadline.
AT&T CEO Randall Stephenson said when the deal was announced in March that he was confident of receiving regulatory clearance. He said the combination would help improve service, speed up investment in faster networks and drive wireless expansion in rural areas. The deal would have added T-Mobile's 33.7 million customers to AT&T's 100.7 million subscribers, surpassing Verizon Communications Wireless's 107.7 million.
Critics of the deal said it would eliminate an aggressive price competitor, driving up subscription costs. T-Mobile's wireless plans are $15 to $50 cheaper than comparable AT&T plans, according to an analysis by Consumer Reports.
The collapse of the deal leaves Deutsche Telekom with one more subscriber-losing business as it confronts the fallout from Europe's debt crisis. The company, based in Bonn, Germany, had planned to use the proceeds to cut debt by $16.9 billion and repurchase $6.5 billion of its shares. Deutsche Telekom also needs funds to upgrade fiber and wireless networks in Germany and other European markets.
AT&T and Deutsche Telekom pulled their applications to the FCC on Nov. 24, with AT&T announcing the same day that it would record $4 billion in costs this quarter to reflect the risk of the deal collapsing.
The withdrawal came after FCC Chairman Julius Genachowski asked the commission Nov. 22 to send the proposal to an agency judge for a hearing. The same move by the FCC in 2002 helped block EchoStar Communications Corp.'s acquisition of satellite-TV rival DirecTV.