Monday saw a flurry of different responses to the announcement of AT&T’s acquisition of T-Mobile USA, the biggest M&A deal in any sector this year. Despite the crises in Japan and the Middle East, Wall Street rallied on the news. The Dow Jones…
Monday saw a flurry of different responses to the announcement of AT&T’s acquisition of T-Mobile USA, the biggest M&A deal in any sector this year.
Despite the crises in Japan and the Middle East, Wall Street rallied on the news. The Dow Jones Industrial Exchange closed up 178.01 points (1.5%) at 12,036.53, while the Nasdaq closed up 48.42 points (1.83%) at 2692.09.
The reaction from the credit rating agencies to the deal was more mixed.
Moody’s put AT&T’s debt on review for a possible downgrade from its current A2 rating. It also put AT&T’s many subsidiaries (including the mobile operator AT&T Mobility) on review for a downgrade.
Moody’s said that it anticipated AT&T taking on US$20bn of debt for the transaction. At the closing of the deal, it estimated that AT&T’s Debt/EBITDA ratio would be 2.4x (far higher than AT&T’s own estimate of 1.7x). This ratio would take it outside the range allowed for Moody’s A2 credit rating.
In a statement, Moody’s VP, Gerald Granovsky, said that Moody’s recognised the strategic advantages to the deal, including enhanced operating scale and adjacent spectrum holdings.
But Granovsky added that “given the nature of upfront spending on integration and investments required to turn around T-Mobile’s operations, AT&T’s credit metrics will not likely revert to historic levels until 2013 or 2014”.
T-Mobile USA lost 339,000 customers last year, bringing its number of subscribers to 33.7 million.
Fitch also put AT&T’s rating on review for a possible downgrade.
Unsurprisingly, there was also a diverse range of views among analysts on the deal.
The principal analyst at Informa Telecoms and Media, Thomas Wehmeier, said that Deutsche Telekom’s CEO, Rene Obermann, had “pulled off one of the most spectacular bluffs in recent history” with the AT&T deal.
After citing previous speculation regarding potential T-Mobile USA partnerships with Sprint and/or LightSquared, Wehmeier said: “The hand that Rene Obermann and his executive team played in scooping US$39bn for the business has arguably trumped all others and has to be seen as pulling the ace from the pack.”
But Wehmeier also suggested it was a good deal for AT&T.
He said: “AT&T has paid a full price for its smaller rival, but the motivation for shelling out to that extent is pretty straightforward – it’s about stocking up on its supply of the basic raw materials that drive a successful operator business, namely spectrum, sites, stores and customer scale.”
By contrast, Dominic Sunnebo from Kantar WorldPanel Comtech emphasised the difficulties that the deal would present for AT&T.
He said: “Whilst T-Mobile’s infrastructure will undoubtedly help relieve the Apple-induced strain on AT&T’s network, it also opens doors to a market the telecoms giant has previously found difficult to attract – a young, technology savvy, but currently cost conscious, group of consumers who have traditionally turned to T-Mobile for the cheaper mobile contracts and a strong prepaid offer.”
Sunnebo added that AT&T is likely to shift more focus to Android handsets and their users, as it has now lost its exclusive rights to sell Apple’s iPhones.
