AT&T Inc's bold $39 billion plan to snap up Deutsche Telekom AG's T-Mobile USA was applauded by investors, although worries about whether it will win approval limited the share rally.
At least four brokerages upgraded the AT&T's stock following the industry-changing deal. Investors appeared to shrug off several years of pressure on AT&T earnings expected as a result of the transaction.
AT&T shares were up 1.64 percent and Deutsche Telekom rose nearly 12 percent to a record high after announcement of the deal, which sent reverberations across the telecommunications industry.
Shares in wireless broadcast tower operators Crown Castle, American Tower and SBA Communications fell at least 5 percent, hurt by AT&T's plan to eliminate wireless towers where they overlap.
Sprint Nextel Corp, which had held talks to combine with T-Mobile, stands to be the biggest loser in the transaction, as it would be left as the distant third in the U.S. market. Its shares were down 16.6 percent.
The deal, announced on Sunday, combines the second and fourth largest wireless operators, creating a new leader that will control roughly 43 percent of the U.S. wireless market.
AT&T warned that the transaction would reduce its reported earnings per share by roughly 65 cents in the first year and would not start to add to earnings until the fifth year after it closes.
AT&T Chief Executive Randall Stephenson, at an investor conference on Monday, said the company would increase capital spending by as much as $7 billion in the first few years after the deal in order to integrate the AT&T network with the T-Mobile USA network.
While the transaction is seen as a bold move that could risk being blocked by regulators, Stephenson suggested he had little choice but to do it as AT&T is in dire need of more wireless airwaves to increase network capacity for mobile Web services.
Now is the time for this transaction. Capacity pressures will continue to grow, he said. We can't afford to wait.
This is Stephenson's first big deal as AT&T CEO, but he and other executives said they were confident they would succeed in getting it completed.
It's something we've done before and we've done it with a lot of success, he said, referring to his company's history, which in the last decade involved the combination of SBC Communications, BellSouth and AT&T.
Shares of other wireless carriers also rose. MetroPCS Communications was up 5 percent, while Leap Wireless shares soared nearly 12 percent on the hope that AT&T's deal would kick off another round of consolidation. The two companies have been seen for some time as potential partners in a merger.
The pricey AT&T/T-Mobile deal is likely to attract intense antitrust scrutiny over potentially higher customer bills.
Still, given the solid valuation, and the fact that we thought T-Mobile USA would struggle to meet targets, selling is a good move, UBS said.
UBS added: This deal, if approved, allows Deutsche Telekom to exit the United States at a price much higher than we included in our sum-of-the-parts valuation for the business as a standalone.
UBS upgraded the stock to neutral from sell.
UniCredit and ESN/Equinet upgraded the stock to buy from hold. HSBC raised its rating on shares of Deutsche Telekom and AT&T to overweight.
Shares of Deutsche Telekom were trading at 10.67 euros. AT&T shares traded at $28.37; and Sprint shares lost 84 cents to $4.20 on the New York Stock Exchange.
(Additional reporting by Kenneth Li and Liana Baker Balinsky in New York and Isheeta Sanghi in Bangalore; Editing by Maju Samuel, Derek Caney and Gunna Dickson)