AT&T promises synergies from T-Mobile deal; will they materialize?

AT&T Mobility (NYSE:T) has said that its proposed $39 billion acquisition of T-Mobile USA is expected to produce cost synergies that exceed the purchase price of the deal. When it announced the deal March 20, AT&T said that revenue synergies will come from opportunities to increase smartphone penetration and data ARPU, with cost savings coming from network efficiencies, subscriber and support savings, reduced churn and savings on capital expenditures and spectrum purchases. Specifically, the carrier said it expects "straightforward synergies with a run rate of more than $3 billion three years after closing onward (excluding integration costs)." However, AT&T's track record with acquisitions is not that promising. When AT&T purchased BellSouth in March 2006 for $67 billion, it said the deal would create synergies with an annual run rate of $2 billion by 2008, rising to $3 billion in 2010. AT&T's filings show that its total earnings before interest, taxes, depreciation and amortization rose around $2.5 billion between 2006 and 2008--meaning that if cost synergies were achieved, AT&T barely grew its profits. Article (sub. req.)

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