AT&T’s Stephenson Plans Court Fight, Concessions to Salvage T-Mobile Deal
AT&T Inc. (T) Chairman and Chief Executive Officer Randall Stephenson is facing the toughest regulatory challenge of his career as U.S. officials put his $39 billion gamble on T-Mobile USA Inc. in jeopardy.
Stephenson, 51, agreed to a deal that will pay T-Mobile a package of $7 billion, including $3 billion in cash plus wireless airwaves and call discounts, if regulators reject the acquisition. Dallas-based AT&T expressed surprise yesterday that the U.S. Justice Department moved to block the deal.
While AT&T seeks an expedited hearing in court to force the Justice Department to make its case against the merger, the carrier will also propose remedies that would make the takeover more suitable to the agency, a person familiar with AT&T’s strategy said. There was no internal debate within the company on whether to fight for the deal, said the person, who declined to be identified because the plans are private.
The acquisition is the largest under Stephenson’s tenure, which began in 2007, when predecessor Ed Whitacre retired after 17 years as CEO. The deal would combine the industry’s second- and fourth-biggest carriers, catapulting AT&T ahead of No. 1 Verizon Wireless.
“He went and did a deal with a very large breakup fee,” said Christopher King, an analyst at Stifel Nicolaus & Co. in Baltimore. “To come out of it with observers knowing they weren’t even close to getting it approved, that is a black eye for AT&T management.”
The Justice Department sued yesterday to block the takeover, saying the deal would “substantially lessen competition” in the wireless market.
“We intend to vigorously contest this matter in court,” AT&T said in a statement. “We have met repeatedly with the Department of Justice and there was no indication from the DOJ that this action was being contemplated.”
Stephenson has argued that the acquisition will benefit consumers by enabling more high-speed Internet services and producing more jobs to expand the company’s network.
“They clearly took a gamble here, so it would be a black mark on him for sure,” Steve Clement, an analyst at Pacific Crest Securities Inc. in Portland, Oregon, said of Stephenson. “It makes things more challenging for them to be able to compete in a cost-effective way.”
’Door Is Open’
AT&T may still be able to close the merger, either by defeating the Justice Department in court or by negotiating with regulators.
“Our door is open” if AT&T wants to address the agency’s concerns about the deal, Sharis Pozen, acting chief of the Justice Department’s antitrust division, told reporters at a news conference.
The Justice Department has assured AT&T that its public comments about its willingness to discuss remedies were genuine, the person familiar with the matter said.
The struggle to complete the T-Mobile acquisition shouldn’t overshadow AT&T’s strong performance under Stephenson’s tenure, said Todd Rosenbluth, an equity analyst at Standard & Poor’s in New York. He praised AT&T’s ability to retain customers even after losing its exclusive relationship with Apple Inc. (AAPL) this year to sell the iPhone, the world’s best-selling smartphone.
“They grew revenue and did quite well despite the economic uncertainty,” Rosenbluth said in a phone interview. “This would be a negative that could be added to the mix of positives.” He advises buying AT&T shares.
Stephenson’s largest deal as CEO before his T-Mobile bid was the 2007 acquisition of Dobson Communications Corp. for about $4.5 billion, including the assumption of debt, according to Bloomberg data. As a chief financial officer and chief operating officer under Whitacre, he had helped usher through at least four deals for more than $10 billion, helping build one of the old Ma Bell’s offspring, Southwestern Bell Telephone Co., into a new telecommunications giant.
Stephenson was born in Oklahoma City and began his career at Southwestern Bell in 1982. He started in the technology department and served a stint in Mexico City overseeing investments in the country. That included the company’s stake in Telefonos de Mexico SAB, the phone carrier controlled by billionaire Carlos Slim, whom Stephenson counts as a friend.
Stephenson, who earned a master’s degree in accounting, relies more on research and analysis than the gut instinct favored by Whitacre, his deputies have said.
’Great for AT&T’
“I am trying to do something good for the company and I think this is great for AT&T,” Stephenson said of the acquisition in a March interview. He wasn’t available to comment for this story, said Larry Solomon, a spokesman for the phone carrier.
A failure to complete the deal would leave Stephenson having to pursue smaller acquisitions to gain airwaves needed for high-speed wireless Internet service, Clement of Pacific Crest Securities said. AT&T would also need to push the government to auction more airwaves so the company could build capacity through those sales, he said.
“That’s where it will hurt them,” Clement said. “They were buying these specific assets to add capacity cheaply.”
Stephenson wasn’t alone in estimating the odds for the T- Mobile purchase winning approval were good. King of Stifel Nicolaus, who advises buying AT&T shares, said he had thought before yesterday’s move by the Justice Department that AT&T had at least a 60 percent chance of completing the deal.
“Everyone can see the rationale behind it,” he said. “It’s not a pie-in-the-sky, left-field acquisition they made, but it appears at this point they badly misjudged the political calculations surrounding the deal. A lot of us did.”
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