AT&T deal a 'fee bonanza' for JPMorgan

Investors love JPMorgan's role in the AT&T acquisition of T-Mobile, and one prominent analyst says the bank could eventually net $500 million on the deal.

By TheStreet Staff Mar 22, 2011 1:22PM

thestreetBy Philip van Doorn, TheStreet


As Wall Street digests AT&T's (T) agreement to acquire T-Mobile from Deutsche Telekom AG (DTE), excitement is brewing for the potential fee and interest income JPMorgan Chase (JPM) and other players can earn from the merger and from subsequent deals.


AT&T agreed to pay $39 billion -- including $25 billion in cash - with reports indicating that JPMorgan had provided AT&T a $30 billion line of credit. Richard Bove of Rochdale Research said that the reports suggested that JPMorgan didn't "syndicate this credit because AT&T did not want any word of its potential bid to leak out."


If this is indeed what has taken place, Bove estimates that JPMorgan's fee for the credit line could be as high as $150 million.


Assuming the merger agreement weathers an antitrust storm, gains regulatory approval and is completed, Bove estimates the "deal could be worth half a billion dollars to JPMorgan," including advisory fees, interest income, fees from the eventual syndication of the bank's loan to AT&T, and more fees likely to be generated from an "equity offering by AT&T to replace the loan at some point, perhaps two years from now, once it has control of T-Mobile."

One veteran Wall Street insider called the deal a "fee bonanza" for JPMorgan and for other financial advisors to AT&T, including Greenhill & Co. (GHL) and Evercore Partners (EVR). Deutsche Telekom's advisers on the deal include Morgan Stanley (MS), Deutsche Bank AG (DB), and Credit Suisse Group (CS).


Warren Gardiner of Ticonderoga Securities on Monday upgraded Evercore to a buy rating from a neutral rating, saying the M&A advisor had a "solid" first quarter and citing its $13.5 billion in deal announcements in March. Gardiner's price target for Evercore is $37.


Bove says that JPMorgan's smooth handling of the AT&T transaction as an example of what the bank "can do to attract other business," and that JPMorgan is a compelling stock because it "has become a formidable force in the investment banking business due to its multiple capabilities." His price target for JPMorgan Chase is $60, which would be a 31% gain from Monday's closing price of $45.63.

Once again, Bove reminded investors of the regulatory hurdles to AT&T's acquisition of T-Mobile, saying "this is the type of deal that the United States government is trying to thwart."


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