AT&T Inc will struggle to find buyers for any asset sale big enough to salvage its $39 billion deal to buy T-Mobile USA, with most likely buyers Leap Wireless International Inc and MetroPCS Communications lacking the cash.
AT&T is looking for ways to make the acquisition more palatable to the U.S. Justice Department and the Federal Communications Commission which have raised objections over reduced competition and job losses.
Leap Wireless is currently in talks with AT&T about asset purchases, according to the New York Times.
And MetroPCS has long said it would consider purchasing any spectrum that is up for sale as a condition for the AT&T deal approval.
But with some analysts estimating that AT&T would have to hive off a huge amount of Deutsch Telekom AG's T-Mobile assets to get the deal through, they worry that neither MetroPCS nor Leap can hope to stump up the cash to pay for the assets.
"The problem is that Leap Wireless or MetroPCS don't have enough liquidity to buy enough assets to make it palatable to the DOJ," said Macquarie Research analyst Kevin Smithen who estimated that AT&T would have to sell up to $10 billion in assets in order to make regulators happy.
Leap Wireless posted a third quarter loss of $94.1 million and had $3.2 billion in long-term debt and $424.7 million of cash and equivalents at the end of September. MetroPCS has earmarked about $2 billion for use in a spectrum purchase.
Representatives for AT&T and Leap declined comment for the story and MetroPCS was not immediately available for comment.
A week ago, the head of the U.S. Federal Communications Commission declared his opposition to the deal that would make AT&T the leading mobile provider and called for an administrative hearing.
The Justice Department sued to block the deal in August due to concerns it would hurt competition and raise consumer prices by reducing the number of big national carriers to three from four. A trial is set to begin February 13.
Michael Nelson from Mizuho estimated that AT&T would have to agree to sell as much as 40 percent of the T-Mobile USA assets in order to gain regulatory approval.
"There's not enough willing and able buyers to satisfy those conditions," said Nelson.
Leap and MetroPCS are seen as the top contenders because regulators may not be happy with an asset purchase by bigger rivals, current No. 1 Verizon Wireless and third placed Sprint Nextel. Also, Sprint is already seeking to raise billions of dollars in funding for other projects.
"Leap and MetroPCS are the two most interested parties. However, their interest lies mainly within their existing markets," said Nelson. who noted that divestitures would likely be required beyond Leap and MetroPCS markets.
On top of the hefty cash consideration, Pacific Crest analyst Steve Clement said investors in Leap or MetroPCS would be nervous about the operating risks for these companies, whose customers pay in advance for their mobile services.
If they were to take on some of T-Mobile USA's postpaid customers, which pay monthly bills, they would need to adjust their billing system or even buy a new one, Clement said.
"You're dramatically complicating your business and raising the stakes from an execution standpoint," he said.
Macquarie's Smithen rates AT&T's chances of closing the T-Mobile USA deal at only 10 percent because of regulatory opposition. This uncertainty will also affect the price any potential buyer would offer for divestitures, he said.
"If the deal doesn't happen the assets will probably come back on the market at a lower valuation," he said. "I don't think anybody's chomping at the bit to help AT&T with their problems if they can get the assets without helping AT&T."
Wall Street confidence in the AT&T deal being completed plummeted to a new low after AT&T said on November 24 that it would take a $4 billion charge and withdraw its application with the FCC to buy T-Mobile USA, at least for now.