AT&T and Deutsche Telekomchave announced a definitive agreement under which AT&T will acquire T-Mobile USA from Deutsche Telekom in a cash-and-stock transaction currently valued at approximately $39 billion. 

With this transaction, AT&T commits to a significant expansion of robust 4G LTE deployment to 95 percent of the U.S. population to reach an additional 46.5 million Americans beyond current plans – including rural communities and small towns. T-Mobile USA does not have a clear path to delivering LTE.

“This transaction represents a major commitment to strengthen and expand critical infrastructure for our nation’s future. It will improve network quality, and it will bring advanced LTE capabilities to more than 294 million people,” said Randall Stephenson, AT&T Chairman and CEO. 

As part of the transaction, Deutsche Telekom will receive an equity stake in AT&T that, based on the terms of the agreement, would give Deutsche Telekom an ownership interest in AT&T of approximately 8 percent. A Deutsche Telekom representative will join the AT&T Board of Directors. 

This transaction quickly provides the spectrum and network efficiencies necessary for AT&T to address impending spectrum exhaust in key markets driven by the exponential growth in mobile broadband traffic on its network. AT&T’s mobile data traffic grew 8,000 percent over the past four years and by 2015 it is expected to be eight to 10 times what it was in 2010. Put another way, all of the mobile traffic volume AT&T carried during 2010 is estimated to be carried in just the first six to seven weeks of 2015. 

AT&T and T-Mobile USA customers will see service improvements - including improved voice quality - as a result of additional spectrum, increased cell tower density and broader network infrastructure. At closing, AT&T will immediately gain cell sites equivalent to what would have taken on average five years to build without the transaction, and double that in some markets.  

The $39 billion purchase price will include a cash payment of $25 billion with the balance to be paid using AT&T common stock, subject to adjustment.  AT&T has the right to increase the cash portion of the purchase price by up to $4.2 billion with a corresponding reduction in the stock component, so long as Deutsche Telekom receives at least a 5 percent equity ownership interest in AT&T. 

The number of AT&T shares issued will be based on the AT&T share price during the 30-day period prior to closing, subject to a 7.5 percent collar; there is a one-year lock-up period during which Deutsche Telekom cannot sell shares. 

The acquisition is subject to regulatory approvals, a reverse breakup fee in certain circumstances, and other customary regulatory and other closing conditions. The transaction is expected to close in approximately 12 months