At $39bn AT&T overpays by 75% for T-Mobile USA says Goldman Sachs
Posted on 22 March 2011 with 3 comments from readers
At $39 billion AT&T is overpaying for T-Mobile USA by around 75 per cent says Goldman Sachs. The historic price-to-earnings multiple of 29 is way above what AT&T is worth itself, and seller Deutsche Telekom’s CFO Timotheus Hoettges also said he thought AT&T was paying too much.
Some Wall Street observers are reminded of the CNN Time Warner takeover of AOL at the height of the dot-com boom that later resulted in record write-offs. Overvalued takeovers near the top of stock market highs have a long history of disasters.
Mega-flops
Why then do they get done? Partly its because big companies always want to get bigger and their managements cannot resist the temptation to takeover rivals whenever it becomes possible.
Hats off then to the Deutsche Telekom management for cashing out at the top of the market. It will be able to pay down debt and fund long-term expansion with this new money.
Zain sale off
The contrast to the Arabian failure last week of the proposed $12 billion takeover of Kuwait’s Zain mobile telecommunications company by UAE giant Etisalat could not be more stark. Etisalat apparently had second thoughts after regional unrest, civil war and revolutions, and due diligence.
But these deals do take time to consumate and perhaps AT&T will later have to back out of this marriage. AT&T’s management is clearly betting its shareholder’s money on a continued expansion of the US economy after the financial crisis of two years ago. Time will tell if Deutsche Telekom has got the better deal.
Wall Street firms will of course get their fees whatever happens.
3 Comments posted by readers:
I live across the street from a middle school. Quite a few of the kids have cell phones. The only reason why owning AT&T isn’t as good as having your own dollar printing press is because they have to struggle to keep up with the data demand. That requires huge investment in infrastructure. That can’t keep up forever because people can’t use 2 ipads at the same time. In a few years, both AT&T and Verizon will become cash machines, unless they get into some price war. That is difficult because they make you sign multi – month contracts. If you try to change carriers, you pay a penalty. Even cheap me gives AT&T $70 EVERY MONTH! 70X12= 840 a year = $8,400 in 10 years from ONE person ! That is as much as my real estate tax ! For the use of 30 year old wires & a tiny bit of electric power.
AT&T yield=6.1%, institutions own 58% of the stock. I own none, but probably should to get some of my money back.
This new acquisition is both good and bad. The good part is AT&T will finally have some reception in areas that it has poor reception so now it can use the T-Mobile towers as well. The bad part from which we saw earlier is rising Data plan prices and rising fees which is quite bad. It is no wonder they recently raised data prices and put a cap on their Data plans. I used to use T-Mobile and am not a fan of AT&T.
The reason they overpaid was to get their customers and get their cell tower sites so that they can offer better reception and at the same time raise their prices due to less competition which is bad for the consumer.
Some old fellow from Goldman said buy Verizon & Vodafone on CNBC. They have been paying fat dividends. He said the US market will continue to go UP until the sovereign debt crisis strikes, possibly in 2 or 3 years. Some other old man on there agreed, unless Brent goes to $125 a barrel. If that happens, he said expect another recession. I think it will have to get to $130 to cause a recession. If a recession looks like it could happen, the Federal Reserve will do QE 3. Ben could probably get away with it, with the problems in Europe, without totally trashing the dollar. Both gentlemen seemed to think that the USA was in better shape than Europe.
And Paul B. Farrell did another class warfare ‘disaster capitalism’ article on http://www.marketwatch.com.us. VERY interesting for an ex-Wall Street insider.
Gold is at a record high. Silver soon will be.
I just read an article saying that the European banks may need to raise $355 billion in additional capital.
And US new home sales are at a RECORD low. The stock market cares not. The multinationals are zooming up and up. Farrell is right. Ben’s money printing bubble continues. But for how long?