AT&T drops $39 bln bid for T-Mobile USA

NEW YORK - Reuters

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AT&T has dropped its controversial $39 billion bid for Deutsche Telekom’s U.S. wireless unit, bowing to fierce regulatory opposition and leaving both companies scrambling for alternatives.

AT&T will have to find another way to address its shortage of wireless airwaves while Deutsche Telekom has to go back to the drawing board on what to do with T-Mobile USA, the struggling U.S. business it had desperately wanted to shed.

The failure of the deal, which was seen as a tough sell from the very start, may call AT&T Chief Executive Randall Stephenson’s judgment into question as he was clearly surprised by the strength of regulatory opposition.

AT&T, which would have vaulted to first place in the U.S. market if the deal succeeded, was so sure it would win approval that it even promised Deutsche Telekom a record break-up package that will cost it $4 billion this quarter.

Stephenson was caught red faced after promoting the deal on TV the same day the U.S. Justice Department sued to block it. From August to late November many experts were puzzled by the companies’ optimism they would win over the regulators.

“It was definitely a miscalculation (by AT&T),” said Steve Clement, an analyst at Pacific Crest Securities. “I don’t know that it’s such a big deal to the extent that you’re going to have people looking for a change of management (at AT&T). But they definitely miscalculated what they would be able to push through to regulators.”

Deutsche Bank, Credit Suisse, Morgan Stanley and Citigroup, which advised T-Mobile, and AT&T’s banks, which included Greenhill, Evercore and JPMorgan, stand to lose a total of $150 million in fees, according to earlier estimates from ThomsonReuters/Freeman Consulting.