This Merger Is Looking Less and Less Likely

What seemed a done deal last spring seems more and more like a dead deal this fall. When AT&T (NYSE: T  ) signed an agreement with Deutsche Telekom in March to buy its T-Mobile USA division for $39 billion, there was nary a peep from naysayers. Even Verizon (NYSE: VZ  ) COO Lowell McAdam said: "The AT&T merger with T-Mobile is kind of like gravity. It had to occur."

But now, the Financial Times reports, a majority of analysts rate the odds that the merger will go through at less than even money. Some even give it only a 1-in-5 chance of survival.

Twixt cup and lip
So what has happened to create such a change of opinion?

• As to be expected, AT&T rival Sprint Nextel (NYSE: S  ) -- said to have desired T-Mobile for itself � started the snowball down the hill. It claimed that the much larger company formed by the merger would create an anticompetitive situation. It warned of a duopoly made up of AT&T and that other wireless giant, Verizon, which would then control 77% of the wireless industry's revenue.
• Attorneys general in several states took notice and started investigations into the alleged anticompetitive effect of the merger.
• Consumers also began registering their unease about a reduction in the number of wireless carriers and peppered the Federal Communications Commission with concerns about potential rate increases.
• In July, Herb Kohl (D-Wis.), chairman of the Senate Antitrust Subcommittee, sent a letter to the FCC and the Department of Justice stating that "this acquisition ... would be contrary to antitrust law ... [and] should be blocked by your agencies."
• At the end of August, the Department of Justice sued in federal court to stop the merger, saying that it would violate antitrust laws.
• Two weeks after that, Sprint also sued to stop the deal from going through.

Fighting back
But AT&T hasn't been sitting still just watching its proposed deal getting hammered. It has brought the full weight of its prodigious lobbying squad to bear on Capitol Hill, and it's touting the job-building power of the merger with full-page newspaper ads.

Sprint also had a limited setback (or victory, depending on your point of view) in its lawsuit against AT&T. The judge threw out all but one aspect of its case: the ability to pursue the argument that smaller carriers with less clout would be put at a disadvantage in competing for the most wanted mobile devices.

What this means
If the deal doesn't go through, then AT&T is obligated to pay Deutsche Telekom a separation fee of $3 billion in cash and an additional $3 billion-plus worth of wireless spectrum and other assets. That's not a bad door prize for Deutsche Telekom if all falls through, but what, then, would it do with T-Mobile? Perhaps it'll end up selling it to Sprint.

AT&T looks down, but it's not out yet. Keep track of these companies by placing them on the Fool's My Watchlist:

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