Deutsche Telekom, AT&T at Odds Over Deal

Deutsche Telekom and AT&T have vowed to fight together in court to rescue a $39 billion sale of T-Mobile USA. That display of unity masks their divergent interests should those efforts fail.

AT&T would gain from drawing out the regulatory review to keep ownership of its smaller rival uncertain while putting off the payment of a breakup fee estimated at as much as $7 billion, investors said. T-Mobile owner Deutsche Telekom is better off having its hands free as soon as possible to explore options after a U.S. Justice Department lawsuit to halt the deal sliced 13 percent off its stock in just over a week, they said.

While Deutsche Telekom remains focused on addressing regulatory concerns, management is starting to consider options should the deal collapse. They include spinning off T-Mobile USA to shareholders and reviving talks with previous suitors. Deutsche Telekom had considered an IPO of T-Mobile USA as recently as last year. Germany’s former phone monopoly can't yet restart talks with other suitors while it’s contractually obligated to fully back the deal, said Heinrich Ey, a fund manager at Allianz Global Investors in Frankfurt who holds AT&T and Deutsche Telekom shares. “With AT&T in the driver’s seat, Deutsche Telekom has to do everything to support them,” Ey said. With the probability of regulatory approval now “very low,” a sale of the entire business would still be the best option for investors, he said. An IPO of T-Mobile may only yield about 20 billion euros ($28 billion), according to Ey’s estimates. Deutsche Telekom had held negotiations with five companies about the future of T-Mobile USA, Chief Financial Officer Timotheus Hoettges said March 21, a day after the transaction was announced, without identifying the companies.