AT&T to buy T-Mobile USA for $39B

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AT&T (NYSE:T) said it will buy T-Mobile USA from parent Deutsche Telekom for $39 billion in cash and stock. The deal has been approved by the board of directors of both firms, but is still subject to regulatory approvals by the FCC and Department of Justice. The companies expect the transaction to close in one year.

AT&T’s Randall Stephenson, right, and Deutsche Telekom’s René Obermann announce the companies’ transaction.The merger, which would combine the No. 2 and No. 4 U.S. wireless carriers, would dramatically increase AT&T's subscriber base from 95.5 million to 129.2 million. It also will significantly broaden AT&T's current and future network footprint: The company said the transaction will allow it to deploy LTE to 95 percent of the U.S. population, or approximately 294 million people, at some point in the future.

AT&T and T-Mobile are the nation's largest GSM carriers. The two other Tier 1 U.S. wireless carriers--Verizon Wireless (currently the nation's largest wireless carrier) and Sprint Nextel (the nation's third-largest wireless carrier)--both operate CDMA networks.

If the deal is approved, the move would push AT&T past Verizon Wireless (NYSE:VZ) as the nation's largest wireless carrier in terms of subscribers. Verizon Wireless ended the fourth quarter with around 102 million wireless connections. (AT&T previously was the nation's largest wireless carrier before Verizon slid past with the acquisition of Alltel in 2008.)

As part of the deal, AT&T will pay $25 billion in cash and the rest in stock. In return, Deutsche Telekom will receive an equity stake in AT&T that would give it an ownership interest of approximately 8 percent. In addition, a Deutsche Telekom representative will join the AT&T board of directors.

AT&T argued the transaction would soon pay off: The carrier said it expects "straightforward synergies with a run rate of more than $3 billion three years after closing onward (excluding integration costs). The value of the synergies is expected to exceed the purchase price of $39 billion."

However, AT&T CFO Richard Lindner predicted $7 billion in integration costs and $2 billion in capital expenses. "Those costs will be offset quickly by sustained synergy benefits," he said, according to CNet.

AT&T said the acquisition will dramatically improve its network--notable in light of T-Mobile's recent advertisements hounding AT&T's network quality. Specifically, AT&T the combination will increase its network density by 30 percent. AT&T also said the merger will allow it to invest in a broader LTE deployment; the carrier said it will increase its infrastructure investment in the U.S. by more than $8 billion over seven years.

Though AT&T, which is based in Dallas, did not disclose possible job cuts related to the action, the carrier said it plans to retain a strong employee and operations base in T-Mobile's hometown of Seattle. AT&T also said, if the deal is approved, it will close down overlapping retail outlets nationwide, though it did not provide details.

AT&T's acquisition of T-Mobile is a bit of a surprise, considering recent market noise pegged Sprint Nextel (NYSE:S) as interested in a teaming with DT's arm in the United States. According to a report in the New York Times, which cited unnamed sources familiar with the matter, discussions between AT&T and Deutsche Telekom heated up in December. AT&T even devised a complicated codename system to keep details of the discussions from leaking: AT&T was codenamed "Tesla;" Deutsche Telekom was "Daimler" and T-Mobile was "Mercury."

Interestingly, Deutsche Telekom CFO Timotheus Hoettges said on a conference call that the German company held discussions with five separate parties over the past few months about T-Mobile USA. However, the company concluded that the deal with AT&T was its best option. 

AT&T's proposed purchase of T-Mobile is the latest in a string of gigantic telecom mergers. Verizon Wireless acquired Alltel in 2008, Sprint purchased Nextel in 2005, and the former Cingular Wireless became AT&T Mobility via the combination of AT&T, BellSouth and SBC that was completed in 2006.

Complete Fierce coverage of AT&T/T-Mobile:
--Will regulators approve the AT&T/T-Mobile USA deal?
--AT&T/T-Mobile merger scrambles long-term handset picture
--What happens to Sprint, Clearwire and LightSquared? AT&T + T-Mobile USA ramifications
--Is acquiring T-Mobile USA the answer to AT&T's data demands?
--AT&T, T-Mobile USA merger as much about HSPA as it is about LTE
--After AT&T deal, Deutsche Telekom to refocus on Europe

For more:
- see this release
- see this Fortune article
- see this DSLReports article
- see this Reuters article
- see this Cnet article
- see this AllThingsD Q&A with AT&T's Ralph de la Vega
- see this Wall Street Journal article (sub. req.)
- see this Bloomberg article
- see this NYT article

Related Articles:
AT&T completes BellSouth acquisition, kills Cingular
Verizon's Alltel acquisition: What are the ramifications?
Grading the top 10 U.S. carriers in the fourth quarter of 2010

Article updated March 21 with additional information. Mike Dano and Phil Goldstein contributed to this report.