JP Morgan, AT&T Bet Big on Telecom Deal
The $20 billion bridge loan JP Morgan provided to AT&T in order to help cement its planned purchase of Deutsche Telekom’s T-Mobile USA unit is the largest commitment the bank has ever made to a client, according to people at the firm.
But that’s just one of the ways in which the cash-and-stock deal could make market history.
It’s not only JP Morgan that is taking enormous balance-sheet risk, at least in the short term, as part of the deal. Its client, AT&T has also agreed to pay a hefty penalty if the acquisition falls through—one of the largest in megadeal history.
That payment—known as a reverse break-up fee—amounts to $3 billion in cash. In addition, AT&T would transfer some of its assets, including the rights to additional wireless spectrum and certain roaming capabilities, to Deutsche Telekom.
In percentage terms, AT&T’s 7.6 percent reverse break-up fee is the largest in M&A history among multibillion dollar deals, according to the data provider CapitalIQ. (A few deals of less than $2 billion apiece were larger.)
In dollar terms, only Pfizer’s $4.5 billion breakup fee to Wyeth two years ago and AOL’s $4.4 billion fee to Time Warner in 2000 were larger.
Overall, AT&T’s planned purchase of T-Mobile is poised to be only the 27th largest M&A transaction in history, according to Dealogic.
But its large size, as well as the considerable financial commitments that both the acquirer and its advisor are making, signal a return of confidence to the markets, say bankers and deal lawyers.
“This will be a watershed moment,” said Jim Woolery, JP Morgan’s co-head of M&A and one of the key architects of the deal, on CNBC's “The Strategy Session” on Monday.
“This deal is about confidence…Here, we’ve made a choice, and the choice has been rewarded.”
Watch Kate Kelly weekdays at Noon ET on CNBC's "The Strategy Session."
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