Bloomberg reports that the U.S. Justice Department has filed a lawsuit to block AT&T Inc.’s proposed $39 billion acquisition of rival T-Mobile USA Inc. In its filing today in Federal Court the government said that the deal would "substantially lessen competition" in the wireless market. The government is seeking a declaration that AT&T’s takeover of T-Mobile (owned by Deutsche Telekom AG, or DTE), would violate U.S. antitrust law. The government also asked for a court order blocking implementation of the deal.
"AT&T’s elimination of T-Mobile as an independent, low- priced rival would remove a significant competitive force from the market," the government said in its filing.
"AT&T had not demonstrated that the proposed transaction promised any efficiencies that would be sufficient to outweigh the transaction’s substantial adverse impact on competition and consumers,” said the government in a statement. "AT&T could obtain substantially the same network enhancements that it claims will come from the transaction if it simply invested in its own network without eliminating a close competitor."
Naturally, analysts and supposed experts see this move differently. Bert Foer, head of the American Antitrust Institute in Washington, said that the DOJ has drawn a line in the sand with this move and that he didn't see any room to settle the case.
"If it could be settled, they would still be talking about it," Foer added.
"This isn’t just a negotiating strategy, this isn’t just a placeholder, they do mean to block it,” said Rebecca Arbogast, a Washington-based analyst with Stifel Nicolaus & Co. "There still is some room for negotiating a settlement, but the likelihood seems narrow."
Others disagree with that analysis - including David Balto, a Washington-based antitrust attorney; and New York University law professor Eleanor Fox.
David Balto thinks the lawsuit may be part of a negotiating strategy, adding that the government may have decided that "the best way to have strength in the settlement talks is to file a lawsuit."
"The important point is that the Justice Department has gone ahead and challenged a big merger of competitors, which it just hasn’t done," said Eleanor Fox, a law professor at New York University. "People were getting used to seeing press releases saying the Justice Department has agreed to merger XYZ with a spinoff."
AT&T said it was surprised by the government suit and that it would ask for an expedited hearing.
"We have met repeatedly with the Department of Justice and there was no indication from the DOJ that this action was being contemplated," Wayne Watts, AT&T’s general counsel, said in a statement to Bloomberg. The company plans to fight the litigation.
Bonn-based Deutsche Telekom said in an e-mailed statement to Bloomberg that it would also contest the U.S. government suit.
"[The] DOJ failed to acknowledge the robust competition in the U.S. wireless telecommunications industry and the tremendous efficiencies associated with the proposed transaction," a spokesperson for the company said.
Rejection by regulators would leave AT&T liable to pay Deutsche Telekom $3 billion in cash, to give T-Mobile USA wireless spectrum and to reduce charges for calls into AT&T’s network, a package valued at as much as $7 billion, Deutsche Telekom has said.
"Given the size of the cancelation fee that was negotiated into this agreement, AT&T has the incentive to fight,” said Andrew Gavil, a law professor at Washington-based Howard University. "The fact that the Justice Department is challenging the deal doesn’t mean they won’t negotiate a resolution at some point."
"Any way you look at this transaction, it is anticompetitive," Sharis Pozen, the acting head of the Justice Department’s antitrust division, said at a news conference.
Pozen said the department interviewed dozens of people and examined millions of documents before deciding that suing was the right path to take, but added that the department’s "door is open" to discuss a remedy with AT&T.