If the T-Mobile deal doesn't go through, AT&T could lose US$6 billion

Regulators are poring over the proposed AT&T/T-Mobile deal, determining whether or not to approve their landmark merger. But what happens if the $39 billion deal doesn't go through? According to a report from Reuters, the cancellation could cost AT&T up to $6 billion in assets and cash.

In previous reports, AT&T admitted that the cancellation of their deal would result in a $3 billion payout to T-Mobile. But now two unnamed sources say that AT&T would also have to transfer about $2 billion worth of spectrum, and a roaming agreement worth $1 billion.

Reuters reports that the cash value ($3 B) is already high, at about 7.7% of the deal's value. But combined with the spectrum and roaming agreement, the 'break-up fee' would be 15.4% of the total deal, and break all global records for such an arrangement.

So why is AT&T offering such an incredible cancellation/consolation prize? In part, it's a sign of their confidence that the deal will go through. But we think it's also meant to convey an inevitability to the landmark merger.

The most valid question might be this: Does the value of the 'break-up fee' mean that T-Mobile wants cancellation more than they want approval for the deal? Fortunately for AT&T, the $2 billion allotment for spectrum would only buy about 10MHz. And while that would increase T-Mobile's high-speed data capability to 150% of their present capability, their LTE service still wouldn't be competitive with AT&T and Verizon.

source: Reuters