The U.S. Department of Justice and the Federal Communications Commission have required asset sales as conditions for smaller wireless purchases. Government clearance of the T-Mobile USA deal, should it come, will undoubtedly require the companies to pare markets and assets.
News that the Dallas telecom retained Bank of America Merrill Lynch may be more significant as a demonstration of AT&T's media savvy than as a piece of deal engineering.
"Just as DOJ prepares its case to go to litigation in close cases, merging parties lay the ground work for divestiture negotiations with the government," Stifel, Nicolaus & Co. analyst Rebecca Arbogast observed in an Aug. 12 note.
Arbogast did not view the development as a signal of the outcome of reviews at the DOJ or the FCC.
"The fact that the banker hiring was leaked is a shrewd move on AT&T's part, as it could whet the appetite (and silence or support) of companies that hope to pick up some of T-Mobile's assets," Arbogast wrote.
AT&T acknowledged that it anticipates divestitures, but did not comment on hiring a bank. Bank of America declined to comment.
Andrew Lipman of Bingham McCutchen LLP notes that recent wireless transactions resulted in divestitures of markets. For example, while small by comparison, AT&T had to divest markets to close its $2.8 billion purchase of Centennial Communications Corp. Verizon Wireless also sold operations when it bought Alltel Corp. for $28.1 billion.
"In this deal parties are also asking for spectrum divestitures in addition to market divestitures," Lipman says, noting that AT&T and T-Mobile USA would have the highest market concentrations in the South, Midwest and West.
The beneficiaries of AT&T's divestitures could include Sprint Nextel Corp., MetroPCS Communications Inc., Leap Wireless International Inc. and Verizon Wireless, which is owned jointly by Verizon Communications Inc. and U.K. carrier Vodafone Group plc.
Roger Entner of Recon Analytics LLC in Dedham, Mass., says that differences in network technologies would not prevent carriers from purchasing markets from AT&T.
"It diminishes the value of what they are selling," he says, "but one of the big winners of the Alltel divestitures, which were CDMA, was actually AT&T," which operated on the competing GSM mobile standard.
By retaining bankers, Entner said, AT&T is backing up its persistent assertion that the purchase of T-Mobile USA will pass regulators.
"What this tells me is that they are very confident that they will get the overall approval," Entner says. "The only thing that was surprising was how long it took for a banker to leak this."
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