Ma Bell’s mobile move

Contact: Brenon Daly

In the largest US telco deal in a half-decade, AT&T will hand over $39bn in cash and stock for T-Mobile USA. Assuming it goes through, the combination would create the country’s largest wireless provider, with some 130 million subscribers. The consolidation move, which has been a hallmark of AT&T over the past decade, would give the carrier one-third more wireless subscribers than second-place Verizon and more than twice the number of Sprint.

Clearly conscious of its increased market share, AT&T took a number of steps – both in language and in terms – to blunt criticism and concerns over the concentration. For instance, in its release AT&T tosses a sop to regulators by portraying this move as a step to connecting ‘every part of America to the digital age’ – a quote borrowed from President Obama and backed by the Federal Communications Commission. (The FCC and the US Department of Justice will likely cast a sharp eye on the planned deal, which AT&T hopes to close in a year or so.) And, in an effort to shore up populist support, AT&T highlights in its release that it is the only major wireless carrier to be a union shop. We can’t remember the last time a major acquirer trumpeted its union status in an M&A release.

Aside from the spin in the official release, the terms of the proposed transaction also appear to us to be structured with an eye toward knocking down as much uncertainty as possible. For instance, AT&T collared the $14bn in stock that it is set to give to T-Mobile USA’s parent Deutsche Telekom. (Although, at least based on Wall Street’s initial reaction, that wasn’t necessary as investors actually nudged the Dow component 1% higher.) But what really caught our eye was the stiff breakup fee: if AT&T has to walk away from the deal, it will be on the hook for a $3bn payment, as well as have to transfer an undefined chuck of spectrum to its would-be partner. That’s a lot of incentive to get it closed.

North of the border disorder

Contact: Brenon Daly

The ‘storm’ caused by Research in Motion’s ‘bold’ play for Certicom looks likely to linger a bit longer. The Blackberry maker originally launched its unsolicited offer for Certicom a month ago, but the cryptography vendor has nixed it. (Certicom also lined up TD Securities to help it fend off the unwanted attention from the fellow Canadian company.) RIM’s bid, which values Certicom at some $52m, was originally slated to expire next week but has been extended through the end of the month.

With this unsolicited offer, RIM joins a growing list of big-name tech firms that have used this once-taboo M&A strategy. Over the past year, firms using unsolicited offers include Microsoft, EMC, Electronic Arts and Cadence Design Systems, among others. If RIM does manage to secure Certicom, it will mark the company’s second recent deal, after some two years out of the market.

Recent Research in Motion deals

Date Target Deal value Rationale
December 2008 Chalk Media $18.4m Mobile content
December 2008 (announced) Certicom $53.2m Encryption
November 2006 Epoch Integration Not disclosed Network management
March 2006 Ascendent Systems $14m* VoIP networking

Source: The 451 M&A KnowledgeBase *451 Group estimate