The largest shareholder in MetroPCS will vote against the operator’s reverse merger with Deutsche Telekom subsidiary T-Mobile USA. Paulson & Co said that while it agrees with the tie-up from a strategic standpoint, it has concerns about the structure…
The largest shareholder in MetroPCS will vote against the operator’s reverse merger with Deutsche Telekom subsidiary T-Mobile USA.
Paulson & Co said that while it agrees with the tie-up from a strategic standpoint, it has concerns about the structure of the transaction.
MetroPCS shareholders will vote on the proposal at an EGM on 28 March.
If the deal goes through MetroPCS shareholders will receive a payment of US$1.5bn in cash and 26% ownership in the combined entity. T-Mobile parent Deutsche Telekom will own the other 74%.
MetroPCS’ special committee has unanimously recommended the offer, which the German incumbent made last October.
Paulson, owner of 9.9% of MetroPCS equity equal to US$355m, argued that the newly merged company would have “too much debt at too high an interest rate to be competitive in the well-capitalised US wireless industry”.
This created a disproportionate risk for MetroPCS shareholders.
Paulson said the telco is worth more as an independent company and should wait for better offers to come along.
Would consider altered deal structure
However, the firm would support a restructured deal with a reduced amount of intercompany debt, a lower interest rate on that debt; added cash and a higher exchange ratio for MetroPCS shareholders, or a combination of these elements.
Paulson’s stance follows that taken by P. Schoenfeld Asset Management (PSAM), which holds just over 2% of the stock. PSAM firmly opposes the current proposal and has called on other shareholders to vote against it. Its concerns are similar to those of Paulson – PSAM has objected to the way the newco is capitalised and the high interest the debt carries.
Following the announcement of its EGM earlier this week, MetroPCS reiterated its support for the transaction saying it will put the operator in a position to better compete with larger carriers. Speaking at the operator’s Q4 results CEO Roger Linquist said he expects the deal to close in early April.
When asked for comment Deutsche Telekom said it remained committed to the terms of the deal and that the merger proposal would substantially benefit both companies.
New Street Research analyst Jonathan Chaplin commented in a note to clients: “We believe there is a strong likelihood that T-Mobile will increase the value of their offer.”
New Street said T-Mobile should reduce the debt they contribute to the merger by US$6.6bn to give MetroPCS shareholders “fair value”. He added that if the German-owned telco did not come back with a better offer then Sprint Nextel might show interest.
The deal would significantly bolster T-Mobile USA’s subscriber base, but it would still leave the merged carrier as the US’ number four operator behind Verizon Wireless, AT&T and Sprint Nextel.
This week MetroPCS reported total revenues of US$5.1bn for 2012 – a 5% increase on last year – and adjusted EBITDA of over US$1.5bn, an increase of 14% over 2011.
