AT&T’s Breakup Fee Less Taxing?

If you find yourself negotiating a merger with a multibillion-dollar penalty for failure, remember this: Breaking up could be tax-deductible.

That’s what AT&T CFO John Stephens underscored in comments at an investor conference. He was talking about the $4 billion accounting charge the carrier took last month as its proposed $39 billion acquisition of T-Mobile USA hit the skids in Washington. Stephens said the real hit wouldn’t be that bad, because Uncle Sam will effectively pick up part of the tab. “I certainly expect that will be fully tax deductible,” Stephens said, according to a transcript. “You guys can do the math on that, but essentially it is a much smaller cash impact than the first impressions may give you.” Analysts at UBS AG did the math. Their take: The cash hit of the breakup fee after taxes would be $1.5 billion to $1.8 billion — as little as half of AT&T’s cash payment to Deutsche Telekom.