Late Wednesday, AT&T said that it will take a $4 billion charge against earnings because its purchase of T-Mobile USA was a failed idea from day one.
The charge reflects $3 billion in cash and $1 billion worth of spectrum that AT&T will owe T-Mobile USA’s parent Deutsche Telekom (DT) if [When? Ed.] the deal fails to gain regulatory approval.
Opposition to the merger was growing louder with each passing week. It reached a apogee with the Federal Communications Commission (FCC) officially opposing the buyout. That comes on top of the Department of Justice (DOJ) anti-trust lawsuit in August. The companies said they would withdraw their pending applications before the FCC seeking approval for the deal. They "officially" intend to continue fighting to consummate their agreement.
As we outlined last month in our article "AT&T’s Buyout of T-Mobile USA has Big Problems," there was near unanimous opposition from other wireless carriers, consumer groups, and the public. This week’s FCC opposition announcement said that instead of the AT&T promise of more jobs, workers would be fired. So much for the Communications Workers of America (CWA) standing tall and saying nobody would lose their job.
AT&T’s official press release sounds very deflated. The T-Mobile USA website did not have an announcement about the withdrawal. Because Thursday is America’s Thanksgiving Day, the US stock markets are on holiday. Perhaps, the companies are hoping the one day respite following their announcement will soften the financial blow.
Gigi B. Sohn, president of Public Knowledge, a consumer group, said in a statement. "While you can never count out AT&T entirely, the fact that they pulled their FCC application speaks volumes about the company?s lack of confidence" in getting approval for the deal. The application withdrawal appears in part intended to prevent the FCC from making AT&T and T-Mobile records public about the potential effects of the merger.
Dallas-based AT&T has about 101 million wireless subscribers. T-Mobile USA, the Bellevue, Washington-based subsidiary of Deutsche Telekom AG of Germany, has 34 million. Verizon Wireless, a joint venture between Verizon Communications Inc and Vodafone Group PLC, has about 108 million, while Sprint Nextel Corp. has 53 million.
Credit rating firm Moody’s said Deutsche Telekom would probably prefer a US exit if the AT&T plan fails. DT said that the withdrawal "is being undertaken by both companies to consolidate their strength and to focus their continuing efforts on obtaining antitrust clearance for the transaction from the Department of Justice. As soon as practical, Deutsche Telekom and AT&T intend to seek necessary FCC approval."
DT is already facing challenges in its main European market, including large investments into fiber optic in Germany and turning around its European business, which is up against tough economic conditions. In Frankfurt, Deutsche Telekom shares were down 0.5 percent by Thursday afternoon at euro 8.69 ($11.67), while the DAX index of blue-chip stocks was slightly higher overall.
Obviously, AT&T CEO Randall Stephenson and DT CEO Rene Obermann have staked a lot on the deal coming through as agreed upon last winter. They have spent a lot of shareholders’ money and political capital, not to mention their personal reputations are on the line too. Don?t forget that million dollars of lobbying money was spent on trying to buy Congressional stoppage of the DOJ legal processes.
It appears we are witnessing another failure in corporate leadership similar to what Hewlett-Packard (HP) had with ex-CEO Leo Apotheker. The next question: will AT&T and Deutsche Telekom shareholders pressure their respective Board of Directors to replace their CEOs?