The proposed merger between AT&T and T-Mobile appears to be in serious trouble.
Bloomberg reports today that the U.S. Government has sued to block AT&T $39 billion acquisition of T-Mobile USA. The merger would’ve created the nation’s No. 1 wireless carrier, placing the new AT&T and No. 2 Verizon miles ahead of No. 3 Sprint.
Such a deal, the government argues, would create “substantially lessen competition” in the cell phone market. The complaint was filed in a Washington, D.C. federal court. The government also asked for a court order blocking any arrangement that might start the procedure.
As soon as the news broke, AT&T stocks shares dropped 5 percent.
In announcing plans for the deal, AT&T said it would pay T-Mobile’s parent company, Deutsche Telekom $3 billion. AT&T would also have to provide wireless and cheaper roaming rates. Published reports said the total cost to AT&T for not doing the deal would be closer to $7 billion.
But the government’s move doesn’t mean the deal is dead. Bloomberg quoted Howard University law proessor Andrew Gavil who said, “Given the size of the cancellation fee that was negotiated into his agreement, AT&T has the incentive to fight. The fact that the Justice Department is challenging the deal doesn’t mean they won’t negotiate a resolution at some point.”
In statements released later Wednesday, AT&T said it intended to push ahead with the merger. Deutsche Telekom released a statement saying it was “very disappointed by the DOJ’s action and will join AT&T in defending” the merger against the complaint.
T-Mobile present Phillip Humm wrote a letter to employees saying “We are surprised by this sudden announcement,” adding it will join with Deutsche Telekom and AT&T.