AT&T’s Breakup Fee: Tax Deductible?

Posted by Sam Churchill on

The WSJ says taxpayers may pick up nearly half the tab on AT&T’s $4 billion payout to T-Mobile USA if the merger fails. AT&T CFO John Stephens was talking about the $4 billion accounting charge the carrier took last month as its proposed $39 billion acquisition of T-Mobile USA hit the skids in Washington.

The $4 billion represented the breakup fee — $3 billion in cash plus $1 billion in spectrum rights at book value — that AT&T owes to T-Mobile parent Deutsche Telekom AG if the deal falls through.

But Mr. Stephens said the real hit wouldn’t be that bad, because Uncle Sam will effectively pick up part of the tab.

“I certainly expect that will be fully tax deductible,” Mr. Stephens said, according to a transcript. “You guys can do the math on that, but essentially it is a much smaller cash impact than the first impressions may give you.”

Analysts at UBS AG did the math. Their take: The cash hit of the breakup fee after taxes would be $1.5 billion to $1.8 billion — as little as half of AT&T’s cash payment to Deutsche Telekom.

In related news, Reuters reports that AT&T plans to forge ahead with its merger despite fierce regulatory opposition, a top executive said on Wednesday.

“We continue to move forward with our efforts to complete the T-Mobile transaction…and we will continue to pursue the sale,” AT&T Chief Financial Officer John Stephens said at the UBS media conference in New York.

AT&T plans to use the $10 billion cash it had accumulated on its balance sheet to prepare for the closing of the T-Mobile deal, Stephens said. In addition, the company has a $20 billion bridge facility and an $8 billion backup in place.

Posted by Sam Churchill on Wednesday, December 7th, 2011 at 2:59 pm .

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