The Fine Print of the AT&T/T-Mobile Merger

Following the well-publicized legal action of the U.S. Department of Justice to block the blockbuster merger between AT&T and T-Mobile, it’s looking less and less likely that the deal will go through, at least in its current incarnation. While this may seem like good news, especially for Sprint, one of the deal’s most vocal opponents and the clear loser should the deal go through, it looks like AT&T has prepared for such contingencies, wrapping itself tightly in contractual protection.

With the deal coming under increasingly focused scrutiny, the public is learning more and more about the fine print in even the preliminary agreement between AT&T and T-Mobile, an agreement that could see the acquisition price drop if the regulations imposed upon AT&T become too burdensome.

That means, even with the news that the DOJ is taking steps to block the deal, it appears that no matter how this whole scenario plays out AT&T will come out with something, it’s just difficult to determine what that “something” will be.

According to a Bloomberg report,there are enough provisos, addendums, clauses and red tape in the preliminary acquisition deal between AT&T and T-Mobile to make anyone’s head spin, jargon clearly designed to protect both AT&T and T-Mobile should this whole thing fall apart.

To make this deal work, analysts are speculating that AT&T will be subject to a mandatory selloff of some of its assets, a move designed to maintain market balance. It would likely involve a combination of AT&T selling off some of its current assets and settling for less spectrum and less of T-Mobile’s customers than originally anticipated.

However, should that mandatory selloff of asset’s be worth more than 20 percent of the total deal—so a selloff of more than $7.8 billion—then a clause kicks in that lowers the overall purchase price of T-Mobile.

The acquisition dance doesn’t stop there though, as should the asset selloff be worth more than 40 percent of the overall deal—so around $15 billion—AT&T can back out of the deal with no penalties or breakup fees.

As a brief aside, should regulators implement the stringent latter selloff demand, it would be interesting to see who could actually afford some $15 billion in wireless assets, as Verizon really has no need for it and its doubtful that Sprint—regardless of how happy the company is that AT&T isn’t getting its way—would be able to afford it.

Back to the breakup fee for a moment, it looks that if this deal does fall apart T-Mobile will get away like a bandit, with AT&T promising to pay the company somewhere between $3 to $6 billion in cash, spectrum, and roaming agreements. With such an exorbitantly high breakup fee, T-Mobile may actually secretly be hoping the deal falls through, as such an injection of revenue and resources would be a welcome boon for T-Mobile’s wireless service.

In the end, while the fate of the deal still hangs in the balance, it seems most of the talk is not about the failure of the acquisition bid, but simply what incarnation of the merger we’ll be left with when the dust from all the legal wrangling finally settles.