It’s OK AT&T is Overpaying for T-Mobile

On Monday, AT&T (NYSE: T) announced its head-turning $39 billion bid for T-Mobile. Wireless rival Sprint Nextel (NYSE: S) is screaming bloody murder, so you can safely conclude the deal gives AT&T some important competitive advantages. On the other hand, I’m less thrilled about the price: 7.1 times EBITDA (T-Mobile’s earnings before interest, taxes, depreciation and amortization). T itself is trading at 5.9 times EBITDA, so management will have to swing the cost axe hard to make the numbers work.

All in all, I’m willing to accept the terms because, by purchasing T-Mobile, AT&T will shrink the obsolescent local wireline business to less than 15% of sales. Sometimes, to escape a technological trap, you have to fork over big bucks. I’m sure the buggy-whip makers wished they had bought a car company — almost any car company, at almost any price — around 1903. In short, I view this transaction as a franchise saver rather than a franchise builder. Buy T at $29 or less.

Source: Investor Place

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