UPDATE 1-AT&T will not pay break-up fee if regulators reject DirecTV deal

Sun May 18, 2014 9:01pm EDT

(Adds background on breakup fees in previous deals)

By Soyoung Kim

NEW YORK May 18 (Reuters) - AT&T Inc has learned its lesson from its ill-fated $39 billion bid for T-Mobile USA .

DirecTV, which has agreed to be acquired by AT&T for $48.5 billion, will not ask the wireless operator to pay a reverse break-up fee, or penalty, if regulators reject the proposed combination, according to people familiar with the matter.

Meanwhile, DirecTV has agreed to pay a $1.4 billion break-up fee to AT&T, or roughly 3 percent of the deal value, if it ends the deal to accept a higher bid, the people added, asking not to be named because the matter is not public.

The companies later confirmed the information on breakup fee.

In 2011, AT&T had to pay $6 billion in cash and assets to T-Mobile when regulators blocked its planned purchase of the smaller rival - one of the largest reverse break-up fees on the record.

Sellers typically demand to be compensated for the sting of a failed deal if regulators bar a deal on antitrust grounds. But buyers have grown wary of promising a big antitrust fee in recent years, in the face of intense regulatory scrutiny and following AT&T's 2011 experience.

For example, Comcast Corp insisted that its $45 billion bid for Time Warner Cable Inc not include a reverse break-up fee, in return for agreeing to pay the price sought by the seller.

DirecTV was comfortable with the absence of such a fee given that it sees a smooth path to winning antitrust approval, people familiar with the matter said.

While AT&T and DirecTV may face questions about the areas where their TV services now overlap, many antitrust experts expect the proposed combination to ultimately win regulatory approval.

But the proliferation of telecommunications and cable deals presents regulators with a conundrum as they seek to preserve competition.

The industry, with two mega deals this year, could see another large attempt at a merger, as Sprint Corp and T-Mobile discuss a deal that would combine the nation's third and fourth-largest wireless operators.

The size of a break-up fee, amid anticipation of regulatory resistance to such a combination, is among several contentious issues that have complicated the talks.

T-Mobile parent Deutsche Telekom wants a large break-up fee if regulators block the deal, while Japan's Softbank Corp < 9984.T> wants the fee to be low to share the antitrust risk, people familiar with the matter have said.

The $6 billion payment from AT&T following the aborted merger is widely believed to have helped T-Mobile challenge its bigger rivals in recent years. (Reporting by Soyoung Kim, Editing by Bernard Orr)

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