Deutsche Telekom said today it would be entitled to a breakup fee if AT&T's planned purchase of T-Mobile USA falls apart, refuting an earlier report that it could potentially end up with nothing.
Reuters, citing anonymous sources, reported yesterday that AT&T may be off the hook for paying a $6 billion breakup fee to Deutsche Telekom under certain conditions. But Deutsche Telekom said today that isn't the case.
"The story from Reuters misstated the facts," Deutsche Telekom representative Andreas Fuchs told CNET today. "The breakup fee was agreed to precisely to deal with the possibility that regulatory approval is not obtained."
That includes the possibility that AT&T walks away from the deal because the government seeks too many compromises and concessions, including ones that exceed what the company originally agreed to with Deutsche Telekom.
Many in the industry had expected AT&T to close the deal, convinced by the unusually large breakup fee for the deal. It's standard practice to have a fee set up to protect the seller in case the deal breaks down. The $6 billion fee--which includes $3 billion in cash and the rest in roaming agreements, services, and assets--spoke to the confidence in which AT&T had in closing the deal.
But the deal is in serious jeopardy after the Department of Justice last week sued to block the deal, citing a possible harm to the industry's competitive environment and ability to innovate. AT&T has been scrambling to save the deal.
The $6 billion fee would be a small consolation for Deutsche Telekom, which has been looking to exit the U.S. business after years of declines. T-Mobile in the last quarter suffered from continued losses of its most valuable contract customer base. It also lacks the spectrum to build a true 4G network, making it difficult to compete with the other major carriers.