Originally published: December 15, 2011
Last updated: December 22, 2011 - 5:00pm
AT&T’s endangered $39 billion takeover of T-Mobile USA could create greater risk for bondholders if it’s killed and the company opts to boost stock buybacks or spectrum purchases, according to Fitch Ratings.
Without the benefits the deal would bring, AT&T could increase share buybacks beyond “moderate levels,” Fitch said. “AT&T’s need to enhance its capacity could lead to a rise in capital spending and/or the acquisition of spectrum through other transactions,” according the report. “We would evaluate those negative factors in the context of the company’s strong free cash flow and its capital spending flexibility,” the Fitch report said. The report also says a scrapped deal could have “knock-on effects” for the credit of other players in the industry including T-Mobile which could have trouble remaining “independently viable and competitive.” Should AT&T decide to end the deal, it will pay T-Mobile parent Deutsche Telekom AG a $3 billion cash fee. Deutsche Telekom has said it values the total breakup package at as much as $7 billion, including lower charges for its customers to terminate calls on AT&T’s network.
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