AT&T-Mobile: Doomed, Delayed or Just Dented?

Now that there’s no chance of AT&T’s $39 billion purchase of T-Mobile USA simply sailing through regulatory review, the market is placing bets on whether it will make it through at all. And opinions on the matter are very much divided.

Bernstein analyst Craig Moffett thinks the DOJ’s lawsuit means the deal is doomed. “Yes, technically there are alternatives. Indeed, AT&T has already indicated that it will ‘vigorously contest’ the DOJ’s decision,” he says. “But with the Department of Justice having sued to oppose the deal, and with the FCC now having made public comments that are unambiguously supportive of the DOJ’s opposition, AT&T’s acquisition of T-Mobile can be considered all but definitively dead.”

But other analysts disagree. BTIG’s Walter Piecyk thinks AT&T will take the DOJ to the mat over this deal in a battle that could rival the one Oracle fought to clear its merger with PeopleSoft.

“We expect AT&T to fight the Department of Justice in court in order to acquire T-Mobile USA just like Oracle successfully did in 2004 in order to acquire PeopleSoft,” Piecyk said in a note to clients. “While AT&T’s challenge might be more challenging, it is incentivized by a large breakup fee of $3 billion in cash, spectrum that we estimate is worth at least $1 billion and a data roaming agreement. Of course, AT&T could still work out a settlement with DOJ, but the body language from Deputy Attorney General James Cole at the press conference today seemed a bit aggressive.”

Finally, Barclays analyst James M. Ratcliffe says the deal is still viable, though AT&T’s chances of pushing it through are a bit diminished. “The DOJ’s filing to block the AT&T/T-Mobile merger comes as something of a surprise, with the timing much earlier than we had expected, given that the FCC is nowhere close to completing its review of the deal,” he says. “We believe that the deal is by no means dead, as the DOJ has stated that the ‘door is open’ for AT&T to propose remedies, but the fact that the DOJ took this strong step this early in the process makes the probability of completion much lower. We now view the probability of success at 35-40 percent, down from our previous 75 percent view.”