Deutsche Telekom eyes $4B pay-off as AT&T/T-Mobile USA deal nears collapse

Deutsche Telekom (DT) could receive $4 billion in compensation from AT&T if the US operator fails to go ahead with its $39 billion acquisition of T-Mobile USA.

AT&T announced that it will take a pretax accounting charge of $4 billion ($3 billion in cash and $1 billion in spectrum) in the fourth quarter "to reflect the potential break-up fees due Deutsche Telekom in the event the transaction does not receive regulatory approval."

According to Dow Jones, Adrian Pehl, an analyst with Frankfurt-based Equinet Bank, believes the break-up payment is positive for DT now that AT&T acknowledges the compensation payment. Of note, the Equinet analyst now rates DT shares at accumulate.

However, the rating firm Moody's said that if the deal falls though, the operational and financial risks are greater for DT than for AT&T. The company told Dow Jones that DT may prefer to exit the US market if T-Mobile USA deal collapses.

If the sale fails to proceed and DT decides to remain in the US market then Moody's believes T-Mobile USA will attempt to revive its fortunes by entering into network-sharing agreements with other US operators.

Fred Huet, a telecom consultant with Greenwich Consulting, said that if the AT&T/T-Mobile deal is unsuccessful, T-Mobile USA would need to  immediately establish plans to cut costs. "They need to find some way of sharing cost across operators," he told Reuters.

While industry sentiment has turned against the AT&T/T-Mobile merger, Moody's believes that DT will push forward aggressively to rescue the deal.

The prospect of DT's German management having a  ‘Plan B' still remains off any agenda. If the deal falls through it will likely through CEO Rene Obermann's strategy into disarray and may cause him to have to invest more in the US entity.

However, this strategy could ignite DT shareholder worries given the company is starting to struggle in its main European markets, and is being asked to make heavyweight investments in German fibre infrastructure to stay competitive.

Speculation on its European strategy has already started with Reuters claiming that the failure of the deal could trigger a sale of DT's shareholding in the UK's biggest mobile operator Everything Everywhere.

"There were already some discussions about options around non-core assets, which includes the UK, before the deal with AT&T was announced," well-placed senior banker (who requested anonymity) told Reuters.

For more:
- see this Dow Jones Newswire article
- see this Reuters article
- see this Bloomberg article
- see this second Reuters article

Related Articles:
Everything Everywhere denies refinancing is aimed at gaining independence
Deutsche Telekom exec in hot water over T-Mobile USA deal comments
FT Orange, Deutsche Telekom to save €1.3B annually with purchasing JV
Deutsche Telekom, AT&T clash over T-Mobile deal interests
Deutsche Telekom's European investment plans will crumble if AT&T deal fails
After AT&T deal, Deutsche Telekom to refocus on Europe
Deutsche Telekom to cut 40% of German HQ staff

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