T-Mobile may lose $6b break-up deal if DOJ stops AT&T merger
updated 07:45 am EDT, Mon September 5, 2011
T-Mobile could lose break-up fee if merger fails
T-Mobile may lose its multi-billion dollar break-up fee if its purchase by AT&T is successfully blocked by the Department of Justice, according to a new report. AT&T was to pay T-Mobile $3 billion in cash and another $3 billion comprised of the estimated value of certain spectrum and a national roaming agreement. The break-up fee is in real danger of collapsing if certain conditions aren’t met, and T-Mobile could be left with nothing to walk away with.
"There are a number of options under which the (break fee) contract will not come into effect," the person, who is familiar with the contract, told Reuters on Monday.
For T-Mobile to land the break-up fee, its acquisition by T-Mobile needed to receive regulatory approval within a certain timeframe. Should that fail to be met, the contract is reportedly void. Regulators could also require parts of T-Mobile to be sold, but this could result in its value increasing, again putting the break-up fee under threat.
The Department of Justice, which has sued to stop the merger, is currently in talks with both companies. A merger may yet be on the table, but it is unknown at this point what form it could take and remain viable.
AT&T has been hastily prepping an alternative to the original deal, hoping that it can still reach an amicable arrangement so that the Department of Justice green lights the merger.
Fresh-Faced Recruit
Joined: Apr 2001
What?
Are you telling me that T-Mobile signed a contract in which it wouldn't get a breakup fee if the DOJ didn't approve? Wasn't that almost the only way that the merger wouldn't have happened?
The breakup fee was to compensate T-Mobile for damages it sustained if the merger didn't go through. T-Mobile's business was hurt by the prospects of the merger. For example, would Apple negotiate an iPhone deal with a company that is going to be merged with another company that already had an iPhone. Would customers join T-Mobile knowing that they'll might become AT&T customers? How many T-Mobile customers didn't renew their contracts because they might become AT&T customers anyway?
T-Mobile leaves this deal in much worse shape than it came into this deal. Without the 6 billion in breakup compensation, T-Mobile will not be a player in the mobile phone market. In the end, we'll still lose the fourth major player in the industry no matter what happens.