AT&T 'well positioned' to fund $39 billion T-Mobile acquisition, CFO says

By Jennifer Lanning Drey

Savannah, Ga., March 21 - AT&T Inc. is well positioned to fund its proposed $39 billion acquisition of T-Mobile USA, Rick Lindner, AT&T's chief financial officer, said Monday during a company conference call held to discuss the proposed transaction.

AT&T announced Sunday that it had entered into a definitive agreement with Deutsche Telekom AG to acquire T-Mobile in a cash-and-stock transaction.

The $39 billion purchase price will include a cash payment of $25 billion with the balance to be paid using AT&T common stock. Under the agreement, AT&T has the opportunity to choose to increase the cash percentage as long as it does not reduce Deutsche Telekom's ownership below 5%.

"AT&T has a very sound balance sheet. We assume no debt in this transaction and our cash generation is strong," Lindner said, adding that AT&T has generated more than $12 billion of free cash flow in the past two years after dividends.

The company also has an 18-month commitment for a one-year unsecured bridge term facility arranged by JPMorgan for $20 billion.

"Funding the cash portion of the price will increase debt, but as synergies are realized, we expect credit metrics will return to target levels, and we expect continued strong cash flow to support our dividend," Lindner said.

Clear path to synergies

Over time, the transaction will enhance AT&T's revenue growth and margin potential, the CFO also noted during the call. Additionally, it provides clear opportunities for synergies and shifts AT&T's revenue mix while increasing its exposure to wireless growth, he said.

The company expects $7 billion of integration expenses and $2 billion of capital expenditures for network-related and other costs during the first three years following the closing of the transaction.

However, those costs will be quickly offset by the synergy benefits, which are expected to reach a $3 billion-plus run rate starting in the third year.

"The synergies available through this combination are sizable, and they're very achievable. The execution path is very straightforward," Randall Stephenson, AT&T's chief executive officer, said during the call.

Benefits of the transaction include that it will improve network quality, provide customers access to additional services and bring advanced long term evolution capabilities to 95% of the U.S. population, Stephenson said.

Confident in completion

AT&T is very confident it can achieve a successful regulatory review, the company's vice president and general counsel Wayne Watts said during the call.

"The facts show that there are significant, unique public interest benefits from this transaction," he said.

Lindner said AT&T will begin work promptly to support the Federal Communications Commission and the Department of Justice in their reviews. The transaction is expected to close in 12 months.

The agreement includes termination and reverse break-up commitments that reflect AT&T's confidence in closing the transaction, he also said.

Specifically, they include $3 billion in cash plus some wireless spectrum and a roaming agreement outside T-Mobile's footprint.

AT&T is a phone and internet services provider based in Dallas.

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