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AT&T to Buy T-Mobile USA for $39 Billion

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AT&T announced its plan to acquire T-Mobile USA from Deutsche Telekom in a cash-and-stock transaction currently valued at approximately $39 billion. The agreement has been approved by the Boards of Directors of both companies, but still needs regulatory approval.

The deal would combine AT&T's 95.5 million wireless customers with T-Mobile USA's 33.7 million customers, giving the combined entity nearly half of the total U.S. market share. To put these numbers into perspective, Verizon Wireless currently has 94.1 million customers, while Sprint has 49.9 million customers and MetroPCS has 8.1 million. (Customer data as of 12/31/2010).

2010 U.S. Wireless Subscribers - AT&T / T-Mobile USA / Verizon Wireless / Sprint / MetroPCS

AT&T claims the combined company would provide:

  • Service improvements – including improved voice quality – as a result of additional spectrum, increased cell tower density and broader network infrastructure
  • Expanded 4G LTE deployment to 95 percent of U.S. population — urban and rural areas
  • $3 billion per year in cost saving synergies

AT&T's acquisition of T-Mobile USA provides an optimal combination of network assets to add capacity sooner than any alternative, and it provides an opportunity to improve network quality in the near term for both companies' customers. In addition, it provides a fast, efficient and certain solution to the impending exhaustion of wireless spectrum in some markets, which limits both companies' ability to meet the ongoing explosive demand for mobile broadband.

With this transaction, AT&T commits to a significant expansion of robust 4G LTE (Long Term Evolution) deployment to 95 percent of the U.S. population to reach an additional 46.5 million Americans beyond current plans — including rural communities and small towns.

Financial information
As part of the transaction, Deutsche Telekom will receive an equity stake in AT&T that, based on the terms of the agreement, would give Deutsche Telekom an ownership interest in AT&T of approximately 8 percent. A Deutsche Telekom representative will join the AT&T Board of Directors.

The $39 billion purchase price will include a cash payment of $25 billion with the balance to be paid using AT&T common stock, subject to adjustment. AT&T has the right to increase the cash portion of the purchase price by up to $4.2 billion with a corresponding reduction in the stock component, so long as Deutsche Telekom receives at least a 5 percent equity ownership interest in AT&T.

The number of AT&T shares issued will be based on the AT&T share price during the 30-day period prior to closing, subject to a 7.5 percent collar; there is a one-year lock-up period during which Deutsche Telekom cannot sell shares.

The cash portion of the purchase price will be financed with new debt and cash on AT&T's balance sheet. AT&T has an 18-month commitment for a one-year unsecured bridge term facility underwritten by J.P. Morgan for $20 billion. AT&T assumes no debt from T-Mobile USA or Deutsche Telekom and continues to have a strong balance sheet.

Conditions
The acquisition is subject to regulatory approvals. In the event the transaction does not receive regulatory approval satisfactory to AT&T and the transaction does not close, AT&T will be required to pay a breakup fee of $3 billion, transfer to T-Mobile certain AWS spectrum that is not needed by AT&T for its initial LTE roll out, and provide a roaming agreement to T-Mobile on terms favorable to both parties. However, AT&T expects to finalize the deal within one year if approved by regulators.

Related
Deal Factsheet (pdf)
Competitive Landscape (pdf)
Data Volumes (pdf)
Spectrum Holdings (pdf)
U.S. Industry Pricing Trends (pdf)

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