Ravi Madhavan's A&D Blog

Roundup

Lots of interesting stuff on the "airwaves" today, here's a selection:

NYT has summary graphics, based on Thomson Reuters data, of M&A activity in 2012 Q1: down 34% at $481B worldwide.

NYT DealBook's Deal Professor on how Google's Motorola Mobility buy is awaiting approval from China's anti-trust authorities.

WSJ conducts a scenario analysis on Greece's future in or out of the EU.

USAir/ American Airlines?

The possibility of a USAir bid for American Airlines appears to have strengthened - stories from Washinghton Post and Forbes, respectively, on how USAir has won pre-approval from American Airlines unions.

On a related note, interesting stories from Washington Monthly and WaPo, respectively, about cities abandoned by airlines (including Cincinnati and Pittsburgh) which then also lose businesses because business travel becomes difficult. When airlines were regulated, the premise was that air service was essentially a "utility," and the Civil Aeronautics Board would set routes and fares. Now that airlines are free to set routes and fares, many mid-tier and small cities are experiencing dwindling air connections. 

Anti-trust review of Martin Marietta - Vulcan offer

WSJ reports that DoJ is drilling deeper into Martin Marietta's takeover offer for Vulcan.

AT&T drops T-Mobile bid

Facing stiff resistance from antitrust regulators, AT&T has dropped its T-Mobile bid (press release here), now owing a $4B breakup fee to T-Mobile. NYT DealBook Timeline here, and WSJ roundup of analyst reactions here. 

More on AT&T's next steps

Following up on yesterday's post, this NYT DealBook story suggests one approach that AT&T may be working on. Excerpt:

But AT&T has been secretly working on an audacious 11th-hour deal to salvage the transaction: AT&T is knee-deep in talks with Leap Wireless, a second-tier but growing wireless player, to sell it a big piece of T-Mobile’s customer accounts and some of its wireless spectrum, according to people involved in the negotiations.

AT&T hopes such a deal would placate the Justice Department enough for it to drop its opposition to AT&T’s acquisition of T-Mobile, these people said, or at least to strengthen AT&T’s hand if it goes to trial. The deal would make Leap the fourth-largest wireless carrier in the nation, but it would allow AT&T to retain enough of T-Mobile’s valuable wireless spectrum, which it says it badly needs to provide the kind of next-generation service that its customers expect, these people said.

 

Next steps for AT&T

This NYT Deal Book article dissects what may be ahead for AT&T now that the FCC has opposed the proposed T-Mobile acquisition: Other than a $4B charge for the breakup fee, an asset sale aimed at reducing antitrust concerns and thus rekindle the deal is a possibility. Excerpt:

AT&T and T-Mobile’s corporate parent, Deutsche Telekom, acknowledged that the deal was in trouble in a Thanksgiving Day announcement. The companies said they had withdrawn, for now, their application to the Federal Communications Commission to join their cellphone operations. They also said that AT&T would take a $4 billion charge against earnings — the amount in breakup fees owed to Deutsche Telekom if the deal is scrapped.

The companies portrayed the withdrawal of the F.C.C. application as a tactical move, after the commission chairman said earlier in the week that he would move to oppose the deal. The Justice Department filed an antitrust suit to block the merger in August.

Focusing on the antitrust trial, scheduled for February, the companies explained, would now be the first step. They vowed to continue to pursue their bold plan to combine the second- and fourth-largest cellphone carriers in the United States.

But the companies’ ambitions must be scaled back if they want any chance at a deal, analysts say. To address the objections of the Justice Department and F.C.C. that a merger would be anticompetitive, AT&T could agree to sell off 40 percent or so T-Mobile’s assets to wireless rivals, they say.

The policy goal, analysts say, would be to strengthen wireless competitors beyond the big two, Verizon Wireless and AT&T. So sales of mobile spectrum, cell towers and customers could not be made to Verizon, but to others, like Sprint and MetroPCS, the third- and fifth-largest carriers.

Or perhaps assets could be sold to a well-heeled foreign company that, unlike Deutsche Telekom, is increasing its investment in the United States: América Móvil, headed by the Mexican billionaire Carlos Slim Helú. Mr. Slim is a major shareholder in The New York Times Company.

 

Kinder Morgan/ El Paso

More analyses of the pipeline deal are rolling in: this one from NYT DealBook describes the need (for pipeline infrastructure) that drove the deal, as well as producer fears that pipeline companies will have too much power. 

More on AT&T/ T-Mobile

The text of the Justice Department's 25-page suit blocking AT&T's proposed acquisition of T-Mobile can be viewed here (courtesy WSJ). Pages 10 and 11 present the crux of the analysis: 97 of the nation's 100 Cellular markets are already highly concentrated, with HHI over 2500 in 96 of them, and just under 2500 in one. Further, in 91 out of those markets, the transaction will lead to an increase in HHI of over 200. (HHI stands for Herfindahl Hirschmann Index, a standard measure of industry concentration, which is explained in the Appendix to the Complaint.) 

The mystery deepens - this is a rudimentary anti-trust heuristic, indeed one that I cover in my A&D course (which is a general management course, not a law course). Thus, it could hardly have been a surprise to AT&T, which suggests that there must have been some breakdown in the negotiations about measures to redress excessive market power issues (such as divestitures in specific markets, etc.) I wonder what the backstory might be.

AT&T's T-Mobile move blocked

Back to campus, and to the new semester, after a travelful August!

The big news of the day was, of course, that the Justice Department has moved to block AT&T's proposed acquisition of T-Mobile. This is a development one can drill down into for days: Apart from the setback to the consolidation strategy, there's a $3B break-up fee, so the downside to AT&T is not trivial. The Justice Department's logic is fairly standard: the top four players in the industry account for 90% of market share, and further concentration (after the deal, it will be the top 3 that account for 90%) will harm consumers. I wonder if there could also be the fear that, post-deal, Sprint's position will be so weak that the market will slip into a de facto duoploy with just AT&T and Verizon. 

As the players and observers digest the dribbles of news, several questions suggest themselves. First, what is AT&T likely to do? NYT DealBook discusses this. The hefty break-up fee might strengthen AT&T's resolve to fight for the deal. Second, did something go wrong in the consultation/ negotiation process between AT&T and Justice? The timing of the announcement was odd - the AT&T Chairman was on CNBC this morning talking up the deal just hours before the Justice Department's announcement. This is a deal that was expected to take a long time in review (with the FCC playing an important role) - so why such an early determination on Justice's side? See here for some commentary on this. Three, will the blocking of this "pro-growth merger," as it has been portrayed, be seen as another anti-business move from this administration? See CNBC treatment here.

 

AT&T - T-Mobile transaction

This website, set up by AT&T, has a lot of background and detail on the proposed transaction, including redacted versions of FCC filings. The latest news is that the FCC has extended its review of the deal.