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AT&T to buy T-Mobile USA for $39 bn in cash, stock

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AT&T. agreed to buy from for about $39 billion in and to create America’s largest mobile-phone company, trumping Sprint Nextel’s effort to acquire the business.

The deal would allow AT&T, now the second-largest US wireless operator, to add about 34 million customers and surpass Verizon Wireless. The acquisition, the largest in the wireless industry since 2004, may face government scrutiny because it combines the second- and fourth-largest wireless providers, reducing consumer choice. Regulatory approval may take a year, Dallas-based AT&T said.

“This is a long process from the regulatory perspective and nothing is guaranteed,” said , a Piper Jaffray & Co analyst, in an interview. “For these carriers, there’s going to be bigger savings on their networks by joining up.”

Deutsche Telekom rose more than 16 per cent in Frankfurt, the biggest intraday gain since it began trading in November 1996. It gained 15 per cent to ¤11.01 at 9.09 am AT&T rose as much 1.5 per cent in German trading to the equivalent of $28.19. It added 20 cents to $27.94 in New York Stock Exchange composite trading on March 18.

Sprint had held talks with Deutsche Telekom about acquiring T-Mobile, people with knowledge of the matter said this month. The companies hadn’t been able to agree on the valuation of T- Mobile, the people said.

‘Very confident’
AT&T said that it would expand the rollout of its high- speed wireless technology, called Long-Term Evolution, or LTE, under the T-Mobile agreement. AT&T will offer the service to an additional 46.5 million people as part of the deal, helping achieve the Federal Communications Commission goal of making broadband available more widely, the company said.

“We studied this thing extensively over the last few months and we’re very confident it will be approved,” , AT&T chairman and chief executive officer, said in an interview. “Most local markets have a choice between five carriers, so the space will remain fiercely competitive.”

The agreement has been approved by the boards of both companies, Deutsche Telekom said in a statement.

The deal is the largest for AT&T since the acquisition of BellSouth in 2006 for about $83 billion, according to data compiled by Bloomberg. It’s the largest takeover to be announced in the wireless industry worldwide since 2004, when Sprint agreed to merge with Nextel Communications, and the sixth- largest mobile-phone deal of all time.

iPhone exclusivity
Since taking over as CEO in 2007, Stephenson has focused on growth through wireless services, rather than the multi-billion- dollar acquisitions common under his predecessor, Ed Whitacre. AT&T began selling Apple’s iPhone in June 2007, and wireless data has since become one of its fastest-growing offerings, with revenue up 27 per cent in the fourth quarter.

AT&T lost its exclusive hold on the iPhone in the US this year, as Verizon Wireless began selling the device to its customers in February. Analysts estimate Verizon Wireless may sell 11 million iPhones this year, the company said that month.

The T-Mobile deal may give AT&T a way to boost earnings because of the money the companies would save by combining their operations. The companies’ estimate that they could have $40 billion in synergies is a realistic assessment, said Jonathan Chaplin, an analyst with Credit Suisse Group.

“Phenomenal deal if it happens,” Chaplin wrote in a research note yesterday. “Huge upside for AT&T; DT getting a great price; however, we believe regulatory risk is enormous.”

Regulatory issues
In the last five years, the median deal price for a telecommunications company has been 4.5 times earnings before interest taxes depreciation and amortisation, according to Bloomberg data. Deutsche Telekom said the purchase price is multiple of 7.1 times 2010 adjusted Ebitda.

The deal drew criticism for its potential to reduce the number of wireless competitors.

“It’s difficult to come up with any justification or benefits from letting AT&T swallow up one of its few major competitors,” Parul P Desai, policy counsel for Consumers Union, said in an e-mailed statement. “AT&T is already a giant in the wireless marketplace, where customers routinely complain about hidden charges and other anti-consumer practices.”

There were 296.3 million wireless subscribers in the US at the end of 2010, according to estimates from researcher eMarketer. Adding AT&T and T-Mobile would give the combined companies 39 per cent of the total, according to data from eMarketer and ComScore, while Verizon Wireless has 31 per cent.

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