AUGUST 31, 2011, 5:18 PM ET
Dealpolitik: DOJ Suit Against AT&T/T-Mobile Is Just the Beginning
By Ronald Barusch
source
blogs.wsj.com/deals/2011/08/31/...obile-is-just-the-beginning/
What might prove most surprising about the Department of Justice suit against AT&T is its lack of legal significance at this stage under the actual contract between AT&T and Deutsche Telekom.
In some deals, the parties’ obligations are conditioned on there being no litigation pending. But not this one. If the companies were ready to close the deal—which they’re not because of other regulatory approvals required for the deal—the merger pact would require them to push through despite the DOJ challenge.
To stop the AT&T/T-Mobile train, the DOJ will need to get at least a preliminary injunction, which requires DOJ winning a trial in federal court, and sustain the judgment through the appellate process.
Of course failing to obtain FCC and any other required regulatory approval by that date would also kill the deal. And this lawsuit will certainly not help in that process.
But the DOJ lawsuit is only one move –albeit a big one– in one of the most complex dances ever. What the suit means is that the negotiations between DOJ and AT&T over remedies—things like asset and spectrum sales and restrictions on business operations to address DOJ’s antitrust concerns—have broken down, for now.
DOJ must have viewed this as a good time tactically to bring this lawsuit. The DOJ could not wait forever: under a legal doctrine called “laches,” if DOJ delayed a lawsuit long enough, it could be barred from getting an injunction. So there was probably some event in the negotiations that caused DOJ to decide it was smart to sue now.
However, given the pain to AT&T and others of letting this deal die, those negotiations are likely to continue.
AT&T has a reverse breakup fee at stake worth more than $3 billion — likely the biggest fee ever paid out in for a failed deal. The practical effect of the cash reverse breakup fee is to act like a discount coupon for Sprint—the most likely beneficiary of any required divestitures—in terms of how much value AT&T would be willing to give up in asset and spectrum sales to get the deal done.
If the deal dies over antitrust, AT&T also will owe Deutsche Telekom some spectrum as well.
And the acquisition agreement provides for a purchase price adjustment which, through a complex series of formulas, requires Deutsche Telecom to share the pain for divestitures of spectrum and assets.
In short, there is a lot for AT&T to negotiate over and just because there is a lawsuit doesn’t mean those negotiations are over.
There is, however, already one winner in this lawsuit: the lawyers. A case like this, if litigated over an extended period, will produce tens of millions of dollars in legal fees.
Of course, AT&T and T-Mobile could throw in the towel and negotiate a divorce. But most likely, the critical part of the negotiations here are just starting.
(The author owns shares of AT&T.)
***
Ronald Barusch spent more than 30 years as an M&A practitioner at Skadden, Arps, Slate, Meagher & Flom LLP before retiring last year. He is no longer affiliated with the firm and the views expressed here are his own.
Zurück
