AT&T to buy T-Mobile USA for $39 billion in Biggest Merger since Financial Crisis

AT&T Inc said on Sunday it would buy Deutsche Telekom AG's T-Mobile USA, in a $39 billion cash-and-stock transaction that would create a new industry behemoth by combining two of the four largest U.S. wireless carriers with 95 million customers ahead of Verizon with 94.1 million.

The purchase price includes a cash payment of $25 billion with the balance to be paid using AT&T common stock. AT&T has the right to increase the cash portion of the purchase price by up to $4.2 billion.

As part of the deal, Deutsche Telekom will get about 8 percent stake in AT&T, and a Deutsche Telekom representative will join the AT&T board. AT&T can increase the cash component so long as Deutsche Telekom receives at least a 5 percent equity stake in it.

The agreement has been approved by the boards of both companies.

AT&T said it would finance the cash portion with new debt and cash on AT&T's balance sheet. AT&T has an 18-month commitment for a one-year unsecured bridge term facility underwritten by JPMorgan Chase & Co for $20 billion.

AT&T will not assume any debt from T-Mobile USA or Deutsche Telekom.

AT&T said the deal is expected to be accretive to earnings, excluding non-cash amortization and integration costs, in the third year after closing.

The deal is expected to close in about 12 months.

What Will Warren Buffett Buy Next?

According to Businessweek, Warren Buffet is going shopping again. He will likely target a basic business trading cheap. Warren Buffett has a cash hoard of almost $40 billion and wants to spend it on major acquisitions. The "elephant gun has been reloaded, and my trigger finger is itchy," the 80-year-old chairman of Berkshire Hathaway (BRK.A) said in his annual letter to shareholders on Feb. 26.

Buffett typically prefers "simple" businesses with pretax profit exceeding $75 million, "consistent" earning power, and "good" returns on equity while employing little or no debt, he says in his report. He has shifted his takeover strategy as Berkshire focuses on "capital intensive businesses" that require investment in infrastructure and equipment, such as power producers and railroads. Investors such as Buffett prefer to buy companies when their valuations are low by historical standards. Last year he made his largest purchase, paying $26.5 billion for Burlington Northern Sante Fe railway. Buffett didn't respond to a request for comment.

General Dynamics (GD), the maker of Gulfstream business jets and Abrams tanks; Exelon (EXC), the biggest U.S. nuclear power generator; and Archer Daniels Midland (ADM), the world's biggest grain processor, are among 45 companies that meet the acquisition criteria listed in Buffett's annual letter, according to data compiled by Bloomberg. "He's probably looking for something along those lines," says Barry James, who oversees $2.5 billion as president of James Investment Research in Xenia, Ohio. "Obviously we're going to need defense, energy, and agriculture."

Buffett owned a stake in General Dynamics more than a decade ago. Its net income rose 19 percent in the fourth quarter as demand for Gulfstream jets rose, and Chief Executive Officer Jay L. Johnson says the aerospace unit will increase sales at least 10 percent this year. Rob Doolittle, a spokesman for General Dynamics, declined to comment.

ADM could appeal to Buffett because it excels at transporting and storing food and grains, "a very difficult business to replicate," says Brian M. Barish, president of Cambiar Investors in Denver. One thing that might deter Buffett is that in 1996 ADM agreed to pay a then-record $100 million antitrust fine after the government accused it of price fixing. Buffett's son, Howard Buffett, joined ADM in 1992, serving as a director and head of investor relations. He resigned in July 1995 because he was unhappy with the company's actions related to the investigation, The Wall Street Journal reported at the time. Roman Blahoski, a spokesman at ADM, declined to comment.

Exelon may be a target as Buffett looks to add to his stakes in utilities and power producers, according to Harry Rady, who oversees $270 million as CEO of Rady Asset Management in La Jolla, Calif. Exelon trades at 10.1 times earnings, compared with its five-year average of 14.7. "It's out of favor," says Rady. "That would be one that would be right up his alley." Exelon spokesman Paul Elsberg also declined to comment.

Buffett could consider adding another insurer to his stable. Chubb (CB), Travelers (TRV), and Allstate (ALL) are all trading below their historical valuations based on book value, according to Paul Newsome, an analyst at Sandler O'Neill + Partners. Buying an insurer "definitely makes sense," he says.

Is SAP in Merger Talks? Who Might Buy SAP?

According to a WSJ article, German software giant SAP said it isn't in talks to sell itself, dampening persistent market rumors of an impending deal. There has been increased speculation recently following ex-SAP CEO Leo Apotheker becoming the CEO of HP where he said he would look to significantly build out a software and services business acting as “the glue” for all other lines of businesses. 

Leo even hired Marge Breya, a brilliant marketer from SAP/Business Objects to become the head of software and services under Ann Livermore. While it would be a big-too-big-to pull together for HP, SAP might just be what they need to catch up with Oracle and IBM. Should they choose go solo, they might find it increasingly more difficult to compete against IBM, Oracle and Microsoft, both of whom did look at SAP in the past but decided not to bid.

While the firm denies they are having merger talks with any party, it has been my experience that 9 out of 10 times, a deal sooner or later emerges out of these rumors at least in the hi-tech world! Time will tell….

"We're not having any talks with anyone," SAP co-chief executive Jim Hagemann Snabe said in an interview. He added that the more than 30% increase in SAP's share price over the past year, which added €20 billion ($27.5 billion) to its market value, makes the company a less attractive target.

Strong demand for SAP's business software amid the global economic recovery has fueled the share price rise. Despite those gains, SAP's narrow focus and relatively modest size have fed speculation that it would be an attractive target as the maturing tech sector consolidates around industry giants such as International Business Machines Corp. and Hewlett-Packard Co.

"The best medicine for SAP to stay independent is to stay successful," Mr. Snabe said in the interview at the CeBit technology conference in Hannover, Germany.

Mr. Snabe's comments come as the company has been trying to extend its reach into new areas.

At the Cebit conference SAP launched new so-called "on-demand" software, where companies pay a monthly fee to access the software using the Internet instead of a traditional license fee.

The Sales OnDemand software, which the company previewed Tuesday, is intended to help sales professionals better connect with their colleagues and manage customer information. It will be generally available by the second quarter, the company says.

Mr. Snabe said the product is unique, in part because it allows professionals to interact with each other in a similar way that Facebook Inc. allows its users to interact with friends.

He added that the company will launch other on-demand products that manage travel expenses or human resources by early next year.

Mr. Snabe reiterated SAP's guidance that the company would increase its software and software-related services sales between 10% and 14%, this year, and pledged to reach €20 billion in sales by the middle of this decade. SAP reported sales of €12.5 billion in 2010.

He added given uncertainties in the world, such as oil prices, the company will revisit the guidance quarterly.

The Walldorf, Germany concern also plans to offer business applications, including its new on-demand sales tool, for mobile devices such as tablets and smartphones. In July, the company purchased Sybase, a Dublin, Calif., provider of enterprise mobile software, for $5.8 billion.

To date, Mr. Snabe said the company's revenue has come mostly from its core business of selling traditional software licenses and maintenance services, but that he expects subscription based revenues from its on-demand software to make up a bigger share of sales this year.