AT&T - T-Mobile Final Thoughts

Monday night, AT&T and TMO announced their $39B merger was dead.  The only surprise was that they did it so quickly; as I've written before, there was a real danger that egos would prevail and AT&T would distract itself by fighting a losing battle with the regulators rather than turning its attention to competing with Verizon.

I went on CNBC's Squawk Box Tuesday morning (sorry; no video link) to offer my thoughts on whether AT&T had made a bad bet.  I'll repeat and expand what I said there:  It was a risky bet - which is why TMO, advised by my former counsel at Wachtell, insisted on the mother of all break-up fees.  But it was a bet worth taking.

The good news for AT&T is that they aren't chasing here.  They can now turn to other options, whether it's acquiring DISH, buying spectrum or capacity from Clearwire, or doubling down on a wi-fi offload strategy.  None are ideal, but they've got to play the cards they were dealt.

Another topic that came up in my interview yesterday was whether scuttling this deal was good for consumers.  It's easy to see why it would be; TMO gets to keep playing to the low end, and there should be more price competition.  But that's also a facile and short-sighted point of view.

This timely WSJ article today touches on, at a high level, some of the fundamental economic headwinds that face U.S. wireless carriers.  It's a vast country, and providing the coverage, capacity and data speeds that consumers want is incredibly costly.  Carriers spent $25 billion on their networks last year.  Only AT&T and Verizon got a return on capital.  Think about that, and what it means over time for consumers.  We're paying for marginal price competition today with hobbled companies and under-investment tomorrow.  A cash-losing Sprint or T-Mobile can't innovate, can't bridge the "last mile" or the "digital divide", and will ultimately fail - leaving the monopoly or duopoly DC is so fearful of - if they can't afford to invest capital in their network.  

So no, the FCC and DOJ did consumers no favors long-term in preventing this deal.   It's time they updated the tools in their "preserving competition" toolbox for the reality of today's wireless industry.

AT&T, T-Mobile & Opportunity Cost

AT&T's acquisition of T-mobile is on the rocks, and it looks like things are going to get uglier before everything settles out.  As I mentioned in this CNN article, I'm convinced the deal is dead. My belief isn't driven by any particular dislike for this deal; in fact, I think it makes a lot of sense.  But it was a big gamble that regulatory approval would come through, and sometimes things don't work out.

The problem here is moving on crisply.  A major consolidating transaction is distracting enough; but trying to push one through the regulatory bog AT&T is facing?  The DOJ has sued to block the merger.  The FCC has referred the matter to an administrative hearing - a near-unheard of event.  AT&T has responded by taking its ball and going home, pulling back its transfer application in the hopes that it can refile once it works things out with DOJ.  All of this spells additional delay and uncertainty.  Neither AT&T or T-Mobile can move forward fully until the merger is resolved, one way or the other.  In the meantime, Verizon can keep taking market share steadfastly, not burdened down by distracting strategic considerations.

It's an object lesson in one of the dark sides of inorganic growth.  Yes, many mergers fail to deliver value.  But even those mergers that likely would work out can backfire if they take too long to consummate.  Company leadership may say all the right things about execution, but merger planning will consume resources and narrow strategic considerations for as long as the deal is pending.  Telecom mergers - with joint review via two separate federal agencies - are inherently time-consuming.  Combine that protracted merger with additional delay, a rapidly-changing industry and a tough competitor leading the market, and it's a recipe for disaster.  Doing a deal with T-mobile probably made all the sense in the world when AT&T drew it up a year ago.  But now that the knives have been drawn, and the best hopes for the merger have dimmed, AT&T must ask the hard question, and ask it soon:  does it continue to throw good money after bad?  For while AT&T is on the hook for a $4 billion breakup fee, there is a very real cost to letting pursuit of a merger prevent full-throated competition in the marketplace with Verizon.

Deal Deliberations

Fred Wilson has a post up regarding Foursquare's recent funding round, defending the lengthy process taken by the startup. What started as financing discussions turned into acquisition talks, then ultimately returned to financing as Foursquare decided they'd rather grow organically than cash out now.

That's a respectable, even admirable, choice. It's not without risk, but it's good to see a company swing for the fences. And while I have often urged the virtues of speed in getting deals done, I agree with Fred that Foursquare did the right thing in taking their time through this process.

The distinction lies between the time taken to evaluate alternatives and the time taken to button the deal up once the company has made its choice. During the evaluation/auction phase, the risks of waiting are likely to be heavily outweighed by the benefits of seeing things through. That may mean getting to the best acquisition deal, or arriving at the informed decision to move forward alone (or with new financing).

However, it's once that decision has been made that things need to be moved forward with haste. Even if you haven't chosen your partner and an auction still persists, once the decision to do one type of deal or another is in place it's time to race for the finish. Why? Because at this point the risk scenario is flipped. The risks attendant with delay - new competitors emerging, changes in the macro environment, etc. - strongly outweigh any potential benefits of waiting. This doesn't mean not negotiating hard, but it does mean not allowing any delay due to lawyerly handwringing or people not being willing to work around the clock to get the deal papered.

Or as someone else put more memorably: "Only one thing matters in this life: Get them to sign on the line that is dotted."



I don't know how long it took Foursquare to get their financing closed once they'd made the decision to go that route, but if it took more than a couple of weeks that would be cause for criticism.

Not, however, the time they took to reflect on their options and make the choice between selling now and moving forward independently.

Like Hogs to the Slaughter

One pig-meat conglomerate buying another isn't typically my stock in trade, but I was intrigued by the recent news of the DOJ levying a $900K fine against Smithfield Farms for gun-jumping in its acquisition of Premium Standard Farms. Root of the problem? During the pre-close HSR waiting period, Premium Standard had submitted several long-term contracts for hog supply to Smithfield for review and approval. Sooey!

While the amount of the fine isn't huge (representing little more than one-tenth of one percent of the $810 million Smithfield paid), what's interesting is how after-the-fact it was. The deal closed nearly 3 years ago.

Lesson one, which isn't really a lesson, because both parties should have known better: Don't ask your acquiror to sign off on ordinary course contracts, even if they ARE large and DO extend beyond the closing date. Aside from the gun jumping risk, there are also significant benefits to the seller in maintaining its operational independence while awaiting the close (optionality in the event the deal goes south; additional motivation for the buyer to close quickly). And while the buyer's interest in making sure it's not saddled with non-economic contracts is obvious, tight operating covenants are a better solution than trying to assert de facto operating control pre-close.

Lesson two: Don't expect that closing the deal is the end of your dealings with the DOJ. If you haven't run a clean process, don't be surprised if the feds come calling long after the closing dinner is a distant memory.

Getting Help with the Deal

Good post over at Venture Hacks from Scott Walker - 5 tips on getting deals closed. Here they are, with my thoughts on each:

1. Create a competitive environment. Absolutely. As I wrote about in documenting the sale of AT&T Wireless, a competitive environment drives price and terms in the seller's favor. The only thing better than telling one group that their legal ask is "no longer market" is getting a call from another that they are raising their offer. But - I would emphasize Scott's advice that this effort is one where you must have experienced help. It is a very delicate process to get an auction going and keep it alive, and not a place for any entrepreneur or business manager to learn on the job.

2. Leave your heart at home. Listen, listen, listen - and always check yourself for signs of deal fever.

3. Work your balls off. True for getting most businesses to succeed, and true in the crunch time of getting a deal done. Work 40 hours over a weekend to get a deal done while markets are closed? Spend a week in New York without eating a meal outside of a law firm conference room? You bet - everything needs to fall away when you're focused on getting the deal done.

4. Don't let your investors screw you. Doing diligence is always important - but requires focus. Pay attention to tone and priorities. Don't pay attention to things that don't make a material difference.

5. Get good legal help. God know I've spent a lot of time on this blog dealing with the failings of lawyers, and much of my deal experience has come as a principal rather than the lawyer on the deal. That said, you need to get someone who matches your energy and willingness to work your balls off, AND who knows your business and is aligned with your level of risk aversion. I've seen a lot of good lawyers blow (or nearly blow) deals by wasting time on marginal legal issues. Make sure your lawyer can tell the difference between what matters to you and what can be moved past.

Whole Foods - A Rare Post-Closing Consent Decree

I've dealt with divestiture trusts on several occasions, both as a buyer and as a seller of assets that federal regulators required to be sold under consent decrees authorizing mergers. While these sales are concluded after the larger deal has closed, the agreement and trust has always been established prior to closing.

So this is a first - Whole Foods, which bought the Wild Oats chain in 2007, has, over 18 months after closing the deal, entered into a consent decree with the FTC to sell the "Wild Oats" name and 32 locations. As I wrote at the time, I thought both the merger AND the FTC's objections to it were out to lunch. When the FTC lost a court battle to obtain a preliminary injunction blocking the merger, Whole Foods quickly closed the deal, despite the fact that the FTC appealed the PI denial. The FTC ended up winning that appeal, and now we have this settlement.

From the perspective of Whole Foods, this settlement is no big deal. There's little chance they ever planned to use the "Wild Oats" name, and the divestitures represent little more than 25% of the total locations acquired. On the other hand, this smells strongly of face-saving by the FTC. The "Wild Oats" name has little value, and of the 32 locations in the divestiture, over half (19) have already been shuttered by Whole Foods.

Red Handed at Whole Foods

I’ve stayed away from posting on the Whole Foods – Wild Oats merger and the FTC’s lawsuit to block the deal. For one thing, I’m a Whole Foods shareholder, having bought after their most recent quarter when WFMI stock finally dropped to attractive levels. For another, I’m in general agreement with the consensus that the FTC is out to lunch on its view that the relevant market in which Whole Foods competes is a narrowly-defined category of natural foods stores, and I haven’t had a whole lot to add.

However, I have a theory about why the FTC filed its lawsuit, and today's revelations bolster my view. I shop at Whole Foods, but I don’t care about getting organic carrots; I appreciate the food quality and the aesthetic of shopping there. Like most others jostling through the cheese aisle at the Redmond Whole Foods, I don’t shop there exclusively. Within a few miles there is competition on the low end from Albertson’s and Fred Meyer, at the mid-point from recently remodeled QFC and Safeway, and local stores like Larry’s and PCC (PCC, an 8-store Seattle chain, is, for all the world, like a mini Whole Foods). All of these grocers have expanded their organic and gourmet foods offerings while also enhancing the whole “shopping experience.” Just about everyone gets this – including, I believe, the FTC.

So who doesn’t get it? Whole Foods. As documents unsealed today show, WFMI’s CEO believed the merger with Wild Oats would prevent a price war. Huh? If Whole Foods competes with all groceries – as everyone believes, and Whole Foods is now trumpeting to all who will listen - what’s the rationale for buying Wild Oats in the first place? Does it really help them expand faster? How does acquiring smaller-formal stores that WFMI plans to close or relocate help them expand geographically? Why not just grow organically, as they’ve done so well for the last decade?

So, the merger never made a whole lot of sense to me, and my theory is that it didn’t make sense to the FTC, either – except as an attempt to take out a competitor (which is not, in itself, a reason to bar a merger). However, any such attempt doesn't even appear to be rational, given the widening of WFMI's competitive market. Three years ago, it might have cleared the field nationally for Whole Foods. Today, they're just buying up a second-tier competitor in a crowded marketplace.

Whole Foods is working off of yesterday’s playbook, and the FTC is probably going overboard because it found some unfortunately-worded documents. The ironic thing is that the antitrust authorities may well end up protecting Whole Foods from a value-destroying merger by killing the thing in court.

XM-Sirius

I've been a happy customer of XM Radio for two years, and I'll be even happier when I can access the full suite of channels offered by XM and Sirius on their merger. Many don't think the merger will get through. The FCC has an explicit rule prohibiting joint ownership of the spectrum. A narrow definition of the relevant market for antitrust combination analysis would yield an HHI score off the charts (i.e., if the relevant market is satellite radio, the merger yields a monopoly). Despite all that, my prediction is that the merger gets through.

XM and Sirius face competition from all sorts of fronts, from traditional (free) radio to iPod link-up. While some of these might not be considered "substitutes" for antitrust analysis purposes, there's no question that terrestrial radio - and nascent high-definition radio in particular - will be considered. Layered on this competitive analysis will be the fact that two satellite competitors, with their astronomical cost structures, are probably not viable long-term anyway. This will take care of the DOJ's concerns. The FCC will do a similar analysis, and reach the same conclusion and eliminate the spectrum cross-ownership rule, although it will likely be a more tortured path getting there than that of DOJ.

Is many respects, the current FCC prohibition is akin to the cellular cross-ownership rule, which prohibited the same entity from owning both cellular licenses in any given geographic market. That rule was eliminated about four years ago as the availability of PCS spectrum made it largely moot. Circumstances demand a similar result here.

Caremark - ESRX Developments

Express Scripts (ESRX) continues to battle away for Caremark. Along with the proxy fight, ESRX also filed a lawsuit last week aimed at the breakup fee in the CVS-Caremark deal. I suppose they have to try everything, but the lawsuit isn't going to work; aside from the merits there's a decent chance they don't even have standing to sue.

As predicted, CVS has upped the stakes a bit in an attempt to push things over the top, announcing a $2 special dividend for Caremark shareholders. This isn't quite as good as it appears, since shareholders essentially pay themselves for the post-merger portion of the company attributable to Caremark, making the dividend closer to $1 than $2. However, between that and recent stock price increases, the ESRX bid is now less than 5% better than the CVS proposal. There's no question CVS is now the superior proposal, given the timing benefit and the fact that regulatory clearance has already been obtained.

The next move belongs to ESRX - while they will continue to slog forward on the desperation measures of the proxy fight and lawsuit, expect to see a sweetened bid in the days to come.

Proxy Fight!

Express Scripts is not skulking away from Caremark's summary rejection, opting instead to raise the volume by nominating four directors of its choosing for the Caremark board. This tactic, an old standby of hostile takeovers, allows the successful hostile to get a friendly board which will, in turn, approve the hostile's takeover proposal. CVS, whose friendly proposal has been embraced by Caremark, labeled the ESRX move a "publicity stunt." It's not, unless CVS means that ESRX is using any means necessary to plead its case to Caremark shareholders.

This isn't a move you'd usually see in a deal this big, but Caremark didn't give ESRX many options. What remains to be seen is whether Caremark shareholders will be swayed. While there has been some grumbling, it doesn't seem loud enough yet. Will shareholders decide that the 50% cash component and 13% premium in the ESRX deal outweighs the better timing and increased chance of closing the CVS deal? I'd say no, unless ESRX ups its bid.

Caremark - CVS

New year, new deals to watch. Some time ago, pharmaceutical services provider Caremark (NYSE: CMX) announced a "merger of equals" with CVS (NYSE: CVS) in a transaction valued at $21B. That deal had toddled along for a few months until competitor Express Scripts (NDAQ: ESRX) hurtled in with a $26B cash-and-stock offer. Today brings Caremark's rejection of the Express Script proposal, and the unusually detailed statement from Caremark is well worth a read.

After the expected litany of reasons why Caremark thinks a combination with CVS offers better strategic benefits, growth opportunities, etc., we get to three of the real reasons Caremark prefers CVS: Less integration risk, quicker timing and greater closing certainty (the CVS deal has already passed antitrust review). These are valid concerns and would certainly justify taking a lower price, particularly considering the concentration in the industry and the considerable (9+ months) timing benefit. Still, with a 20% pricing gap between the proposals you've got to wonder if Caremark has really taken the time to review the merits of a deal with Express Scripts, or at least play it out to leverage CVS to a better price or terms.

There's also a lot of drama in the backstory here, relating to options backdating, indemnity and officer compensation that I won't get into here but which may make the issue of closing certainty that much more important for Caremark management. How that works for shareholders is another matter. I suspect this one won't move quietly to closing.

DOJ Tries Constraining Second Requests

This is welcome news that DOJ is trying to put some limits around how it handles second requests for information in large mergers. The biggest issue in second requests is the sheer number of documents that need to be provided to DOJ. When I ran the process for relying to DOJ's second request in the sale of AT&T Wireless, we ended up turning over 10 million pages of documents - and that was the smallest number provided by the 4 parties (SBC, BellSouth, Cingular, AWE) in the merger. We upended the offices of dozens of employees, and for a two-month stretch commandeered a large conference room and filled it with scanners that busily hummed away night and day collecting the documents. I doubt that the mountains of documents dumped on DOJ's door during that process could possibly have been reviewed in any meaningful way, rendering the document portion of the second request more of a costly compliance exercise than anything else.

It's unfortunate, because DOJ has an important job to do in reviewing mergers, but the tools it wields are the blunt instruments of litigation. Any merger of substantial size is going to be subjected to a second request, and thus put through the time and expense of a paper response that must follow the broad rules of discovery in litigation but that is unlikely to be useful in most cases. I suspect that DOJ's economic analyses and the parties' responses to interrogatories (and perhaps certain electronic discovery) are far more determinative to DOJ's decisions on blocking mergers and negotiating consent decrees than any documents provided. Ideally, DOJ would find a way to limit or stage document production while finding ways to more closely hone in on the critical review issues in each merger. Anything that moved this process away from the binary intractability of litigation - at least in all but the most extreme cases - would be welcome indeed.

Judges and Consent Decrees

I would add that judicial deference to DOJ in reviewing consent decrees is warranted. Justice does an incredibly thorough, months-long review - the companies involved must turn over thousands of documents, answer pointed interrogatories and generally let DOJ and its investigators and economists dig deep into their businesses. The fact that the remedies in consent decrees sometimes seem mild says less about DOJ's focus on enhancing competition than it does about its assessment of the chances of prevailing in a lawsuit to block the merger. Most mergers - even consolidating ones - are unappealing to a few parties but unlikely to be shot down under current antitrust laws. So, like any litigators seeking to salvage something from a bad case, DOJ will try to get some kind of concession from the merger participants.

Consent Decree Review

I'm watching with some fascination as the SBC-AT&T and VZ-MCI mergers are going through a rarely-seen kind of judicial review at the very tail end of the merger process. Up to this point, things have proceeded in what I'd call the ordinary course for big consolidating mergers: Post-signing, a Hart-Scott-Rodino review process involving lengthy discussions with DOJ, the production of millions (or tens of millions) of pages of documents, and ultimately the negotiation of a consent decree with DOJ that ends the Department's review. The consent decree obligates the merged company to undertake (or refrain from) certain actions - divesting properties, staying out of certain markets, or, in the case of these deals, keeping open to competition a limited number of fiber optic connections.

The consent decree is a settlement agreement in litigation - upon reaching agreement on the consent decree, the DOJ files a lawsuit in federal court ostensibly seeking to block the merger, and at the same time (or shortly thereafter) files the consent decree "settling" the lawsuit. As this is typically the longest lead time item in a consolidating merger, the parties usually close the deal as soon as the consent decree is filed. Later on - and, importantly, well past closing - a judge reviews the consent decree. It's fair to say that judges have typically shown a great deal of deference to DOJ's findings in approving consent decrees.

Judge Sullivan, reviewing the consent decrees here, is questioning the rationale behind the remedies agreed to by the DOJ. It's possible that he is just carefully fulfilling what he sees as a mandatory duty to review the appropriateness of consent decrees, and that the pleadings filed by the parties were too short on substance for him to do so. But the vocal opposition to these deals - and Sullivan's since-retracted call for evidentiary hearings - keep open the possibility that this may get ugly.

This new judicial toughness under the 2004 Tunney Act amendments also raises a whole new set of considerations in negotiating a consolidating deal. As a buyer, do you insist on being able to hold on closing until any consent decree is approved by a judge? As a seller, what do you need to get out of the deal in order to agree to that? Can either party afford to wait the year-plus period it takes to complete the entire process? SBC and VZ can obviously absorb a certain level of changes to the deals they cut with DOJ, but what happens when a judge imposes changes so onerous they crater the original rationale for the deal? After all, it's not like these companies can go back and recreate the status quo pre-closing without destroying a tremendous amount of value.

Cross-Border Fun and Games

I spent the last week or so on vacation in Rome - a great place for unwinding and gaining perspective. During my trip I stayed clear of e-mail (and certainly blogging), but I did watch enough of Sky News to see reports of the "merger of equals" (i.e., takeover) between Spain's Abertis and Italy's Autostrade. The new company will be the world's largest operator of toll roads and airports. It will also be headquartered in Spain.

Predictably enough, Italy's incoming Prodi government was all over the deal, questioning whether the Iberian-centric company would have the proper focus on creating new infrastructure in Italy. Putting aside the utter speciousness of that argument for a moment, I am struck by the continued resistance, in our age of globalization, to cross-border deals. And it's not just leftist coalition governments in Italy: In the last year here in the U.S., we've seen major deals blown on even flimsier grounds - the recent Dubai ports debacle and the attempted takeout of Unocal by China's Cnooc. In all cases the putative buyers are major global companies, traded on global exchanges, answerable to investors spread around the world, and often managed by teams hailing far from the acquiror's corporate HQ. Why the hyper-focus on the national roots of the corporate buyer? Listen to some folks talk and you'd think these guys are the modern equivalent of Viking raiders, lighting our thatched roofs on fire and brutalizing the people.

Governments obviously have a right - and a duty - to vett foreign purchasers and make sure deals don't compromise national security. I can even be somewhat sympathetic to government objections to deals that explicitly harm domestic competitiveness or cost a large number of jobs. There are certain higher bars that a foreign acquiror should legitimately expect to have to clear. However, it seems that you've also got to spend a lot of time sniffing out the more extreme arguments, play devil's advocate like a flag-waver, and in the end make a sober assessment of whether your deal can make it past the mob.

Gun-Jumping

Sometimes it just doesn't pay to be a tough negotiator - witness Qualcomm's announcement Monday that it is entering into a consent decree with DOJ and paying $1.8M to settle claims of gun jumping in its acquisition of Flarion ("gun jumping" being where the acquiror starts getting a bit too intimate with the seller's business ops before the deal has closed).

While a buyer can't run the acquired business before the deal closes, there's always a healthy negotiation over the amount of control the buyer will exert (via operating covenants written into the acquisition agreement) during the pre-closing period. These covenants are typically designed to ensure that, to the extent possible, the acquired business continues to operate in a straight-and-narrow course until closing. Themes for operating covenants include the permissable amount of new debt, capital expenditue limits, asset sales, etc. - anything that might materially change the nature of what the buyer thought they were buying. However, buyers usually have to stay well clear of anything involving customers and markets, particularly when acquiring a competitor, to avoid the appearance of gun jumping.

Gun jumping is of heightened concern in industries like telecom, where the wait for closing can exceed one year. The long wait obviously increases the operating risk during the pre-closing period, thus ratcheting up the desire to steer the target's course during that period or get a jump on integration. Many M&A lawyers take a very conservative stance on gun jumping, preventing most conversation pre-close on the (not unreasonable) presumption that some business people will jump the gun. Buyers want to get moving; sellers usually want to be compliant - the gun gets jumped.

What's interesting about the Qualcomm news is that the claims don't relate to any over-reaching behavior by Qualcomm executives, but rather the language in the merger agreement itself.

Obviously the size of this fine is not material to Qualcomm or even this deal itself (the $1.8M fine is well less than one-half of one percent of the purchase price). However, I'm sure the threat of this action scuttling or slowing the deal caused many a sleepless night for those involved - and may still, if you are a Qualcomm lawyer.

AT&T - BellSouth MAC

Although unlikely to ever be at the center of a J&J-Guidant-like merger termination drama, I figured the MAC clause in the AT&T-BellSouth merger might be interesting. Here it is, courtesy of the filing at Edgar:

(ii) the term "Company Material Adverse Effect" means
(x) an effect that would prevent or materially delay or impair the ability of the Company to consummate the Merger or (y) a material adverse effect on the financial condition, properties, assets, liabilities, business or results of operations of the Company and its Subsidiaries, including its interest in Cingular, YP.com and their respective Subsidiaries, taken as a whole, excluding any such effect resulting from or arising in connection with changes or conditions (A) generally affecting (I) the United States economy or financial or securities markets, (II) political conditions in the United States or (III) the United States telecommunications industry or any generally recognized business segment of such industry, (B) generally affecting the telecommunications industry (or any generally recognized business segment of such industry) in the Company Region, taken as a whole, (C) resulting from any hurricane, earthquake, or other natural disasters in the Company Region, (D) resulting from the execution, announcement or performance of this Agreement, or (E) resulting from or arising in connection with the financial condition, properties, assets, liabilities, business or results of operations of Cingular, YP.com or any of their respective Subsidiaries; and (iii) the "Company Region" means the states of Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina and Tennessee.

This is pretty straightforward (the AT&T MAC clause mirrors this, only with different regions), and obviously doesn't provide a lot of room to exercise. The interesting part is that problems at Cingular - which is at the center of this deal - can't be the cause of a MAC, no matter how bad such problems might be. Furthermore, problems at the non-Cingular parts of BLS have to be measured against the entire BLS entity in determining if a MAC has occurred. Since Cingular represents something like 60-70% of overall BLS revenue (and growing), problems in the BLS business would have to be awfully dire to constitute a MAC.

Knowing the lawyers involved, I'm quite sure a lot of time and energy went into negotiating this clause, but it's something BLS absolutely had to have (and it's only fair they got it, since AT&T owns 60% of Cingular and effectively runs it already). Closing risk isn't always a major factor in mergers, particularly in small deals with no real regulatory conditions. Here, where closing will take 12-15 months and countless hours spent dealing with the DOJ and FCC, BLS needed to mitigate as much closing risk as possible. Looks like they did so in the MAC at least.

AT&T - BellSouth

So SBC - newly re-named AT&T - has bought BellSouth for $84B. While certainly not a shocker, I am a little surprised at how fast it happened, given that SBC is still in the re-branding campaign it launched after closing the acquisition of AT&T last fall. Wayne Watts, SBC's primary M&A guy, has now done something like $150B in transactions in the last two years - way to go, Wayne!

While there will be lots of handwringing by consumer advocates in the months ahead over this deal, there's no question it will meet with regulatory approval. AT&T and BLS don't have a lot of overlapping markets, and in the primary growth engine - Cingular - there is obviously no overlap. Plus, those guys in San Antonio are hardly neophytes or shrinking violets in getting deals like this through the sausage-making approval process at Justice and the FCC.

Most amusing to me is that the Cingular name will be gone, reborn as AT&T Wireless (this news comes less than 15 months after Cingular finished rebranding all of the AT&T Wireless stores). And here I thought that entry on my resume was going to fade into oblivion!

No Deal Fever

Good to see that J&J didn't succumb to "deal fever" and chase the $27B proposal made by BSX. Still, as I posted last week, J&J could have had Guidant for several billion dollars less had they not overestimated their leverage in exercising the MAC clause. Perversely, Guidant's problems post-signing - which precipiated J&J exercise of the MAC clause - ended up creating $2B in shareholder value. It's a strange world.

Good to Be Guidant - Redux

After J&J's last offer, I said I would be disappointed if BSX didn't pull out the stops and make its best offer. It looks like they've done that, coming in WAY over the top with a deal valued at over $27B. That's something like a $3B increase over J&J's last offer, and for J&J to be competitive here they will need to go over the $25B they originally offered oh so long ago. J&J won't need to go to $27B, since they've still got the advantages of time and certainty of closing, and because the market is likely to take BSX stock down pretty viciously for fear of what this merger will do to the company's credit ratings. Still, it will take more than $25B for J&J to win Guidant, meaning the whole exercise of J&J declaring the MAC clause was a colossal strategic blunder, costing J&J time, money and quite possibly the opportunity to make this acquisition. Sometimes you've got to leave a few dollars on the table in order to make sure you get what you're after.