Federal Judge Stays DOJ's Antitrust Case Against AT&T; Companies to Evaluate Options

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By Paul Barbagallo  

The judge overseeing the Justice Department's lawsuit seeking to block AT&T's proposed $39 billion acquisition of T-Mobile USA has agreed to stay proceedings in the case as the two companies weigh alternatives for obtaining regulatory approval (U.S. v. AT&T Inc., D.D.C., No. 1:11-cv-01560, 12/12/11).

Judge Ellen Huvelle of the U.S. District Court for the District of Columbia ordered the stay at the request of AT&T, along with T-Mobile's parent company, Deutsche Telekom, following a series of blows to the proposed takeover.

The case will now be put on hold until at least Jan. 12, at which point AT&T and Deutsche Telekom must file a report describing “the status of their proposed transaction, including discussion of whether they intend to proceed with the transaction at issue in this litigation, whether they intend to proceed with another transaction, the status of any related proceedings at the FCC [Federal Communications Commission], and their anticipated plans and timetable for seeking any necessary approval from the Federal Communications Commission,” Huvelle said in the order issued Dec. 12.

AT&T's legal and procedural setbacks started on Nov. 22, when FCC Chairman Julius Genachowski sent the other commissioners a proposed order to refer the case to an administrative law judge, effectively stating his office's opposition to the deal. On Nov. 23, AT&T promptly withdrew its application from consideration by the FCC, saying it would resubmit the filing once the DOJ antitrust case was resolved. A trial had been scheduled for Feb. 12.

Possible Benefits of Withdrawal.

According to several industry observers, AT&T's withdrawal also would have allowed the company to submit a new application detailing a different deal structure, should a potential settlement with the Justice Department have necessitated some degree of divestiture to allow the acquisition to close.

It is also believed that AT&T decided to withdraw its application in part to prevent the DOJ from using FCC documents about the potential effects of the merger.

The most recent blow to AT&T came on Dec. 9, when a lawyer for the DOJ told Huvelle during a schedule conference that the Justice Department planned to file a motion to stay or dismiss the case without prejudice because there was no longer officially any deal pending before the FCC. The move was designed to avoid a trial, for which the DOJ would be understaffed, as compared to AT&T, but also to force the company to resubmit an application to the FCC, which would leave AT&T back at square one in the regulatory approval process.

“AT&T and Deutsche Telekom advised Judge Huvelle this morning that they wish to stay any further court proceeding … to allow the two companies time to evaluate all options,” AT&T said in an e-mailed statement Dec. 12. The DOJ joined in the motion.

“AT&T is committed to working with Deutsche Telekom to find a solution that is in the best interests of our respective customers, shareholders and employees,” the company added. “We are actively considering whether and how to revise our current transaction to achieve the necessary regulatory approvals.”

AT&T, Deutsche Telekom to Explore Alternatives.

The stay of the court case may now open the door for more serious discussions between AT&T and Deutsche Telekom about an alternative governing structure.

In recent weeks, AT&T has begun making preparations to pay Deutsche Telekom a $4 billion breakup fee. AT&T expects to recognize a pretax accounting charge of $3 billion in cash and $1 billion worth of spectrum this quarter in the event the transaction does not receive regulatory approval.

Speculation has arisen within the industry that AT&T is maneuvering to avoid the breakup fee.