One of the big news stories yesterday was that the Department of Justice scuttled AT&T's plan to buy T-Mobile. That's not entirely remarkable on the face of it, although it seems to come as a big surprise to AT&T. What is very eye-opening is the fact that AT&T is now on the hook for a $3 billion breakup fee as well as additional consideration to T-Mobile. In other words, if the deal doesn't go through AT&T must pay $3 billion for the privilege of having negotiated with them. To provide some perspective, AT&T paid about $9.9 billion in dividends* in 2010. They'll pay more this year, but...it's a big chunk of change.
Certainly, AT&T's management had to sign off on the terms of a breakup of the deal. A breakup fee is not unusual, and some consideration would have been necessary to achieve agreement on a deal. Nonetheless, couldn't have this been done for some lower level of consideration? How about a measly $1 billion. I'm no expert in this space, but did AT&T's investment bankers fail them here? As I understand it, AT&T's primary banker on this deal was Greenhill, a smaller boutique M&A firm. These are the kinds of guys I cheer for, everything else being equal, but it really seems like they've been outmaneuvered on this merger.
As with any of these deals, this one is far from over. We're likely still in the early innings and I suspect we'll see some restructuring to appease the DOJ in order to get this deal done. Both sides seem to want that, although it seems clear that T-Mobile would get the better end of a breakup.
Speaking of innings, today we learned that David Einhorn has pulled out of his very high-profile bid to rescue the New York Metropolitans from financial disgrace. Oh, the horror! (Sorry, that was a cheap shot culled from my memory of the days when the Mets shared the National League East with the Cubs). Einhorn says that both he and the Mets had restructured their deal in response to bankers, and he thought they were on the same page. Part of the deal included a commitment on the part of the Mets to deal exclusively with Einhorn for a fixed period of time. As the end of that period approached, Einhorn says he was assured by the Mets' investment bankers that he shouldn't worry about the exclusivity clause because the Mets had not intention of dealing with somebody else. When the clause expired, the Mets did just that.
There is probably a reasonable argument somewhere in there that says that Einhorn was naive to trust the i-bankers, but I guess that's the point here. What's so hard about being a little bit honest, even in business negotiations? Maybe the Mets kept their bankers in the dark and I'm being unfair, but somehow I don't think so. I get that their responsibility is to their client, but that loyalty doesn't preclude honest dealings.
The other thing that strikes me as odd is that, if you're unfamiliar with David Einhorn, he runs a large hedge fund, agitates for management changes when he sees fit, and otherwise wields some influence on Wall Street. It's conceivable that he'll run into these i-bankers again, I would think. The good news for Mets-fan Einhorn is that investing with your heart is usually not a path to high returns.
I'm looking at these deals from a pretty high-level perspective. What am I missing? Were these two big fails for investment bankers? Feel free to comment with your thoughts. One thing is for sure: if this deal ultimately doesn't happen, it will indeed be a bad week for the bonuses of a whole lot of i-bankers.
* For the sake of full disclosure, and to explain my subtle annoyance over the $3 billion number, the Camelback Fund is long AT&T.