AT&T: Wells, Mizuho Offer Charitable Words

Analysts continue to puzzle out the implications of AT&T’s (T) announcement on Thanksgiving day it would withdraw from the Federal Communications Commission its application for its merger with Deutsche Telekom’s (DTEGY) T-Mobile Unit, and the further announcement that it will take a $4 billion accounting charge in case it ultimately fails to find approval.

A hearing over the Department of Justice’s suit against the deal was delayed today from this week to “early december,” reports Reuters’s Diane Bartz.

$4 billion is hard to swallow, but there are some charitable words on the Street for AT&T today.

Mizuho Securities’s Michael Nelson today reiterates a Buy rating and a $33 price target on AT&T shares. Nelson writes that “We believe shares of AT&T already reflect the expectation that the deal does not receive regulatory approval,” and concludes that the deal is “close to dead,” specifically having less than a 10% chance of success.

AT&T can sell some assets, but that probably wouldn’t be enough, he thinks:

Although we believe MetroPCS (PCS), Leap Wireless International (LEAP),�and US Cellular would have significant interest in acquiring assets within their current markets, our analysis shows the overlap is unlikely to be enough to satisfy regulatory concerns. In 17 markets where the AT&T/T-Mobile post-merger concentration would be >50%, PCS only operates in 4 markets, LEAP in 6 markets and USM in 2 markets.

Nelson thinks if it does fall apart, then T-Mobile will resort to more aggressive pricing to compete.

Jennifer Fritzsche with Wells Fargo, who has an Outperform rating on the stock, argues it was smart for AT&T to yank the application from the FCC, for by doing so, it prevents an outright rejection, thus allowing AT&T to�file again sometime:

Given the fact it [AT&T] is unlikely it will achieve its prior close timing goal of 1H 2012, by removing this application now, AT&T denies this FCC the chance to affirmatively and unequivocally deny the merger. This could be a smart move as the company may be preserving itself the opportunity to refile at a time when the politics are better, and perhaps after a new FCC Chair is put in place (possibly after the November presidential election).

AT&T shares today are up 52 cents, or 2%, at $27.93.