Will T-Mobile USA Raise its Offer for MetroPCS?

Deutsche Telekom is reportedly considering revisions to the terms of its proposed merger of T-Mobile USA  and MetroPCS Communications, to head off investor objections. Hedge fund Paulson & Co., MetroPCS's largest shareholder, is among the investors who think the Deutsche Telekom offer for MetroPCS is insufficient.

Under the current terms of the deal, MetroPCS shareholders would get $4.06 per share in cash, plus stock equivalent to 26 percent of the combined company. Deutsche Telekom would own the rest.

The new company will have almost $19 billion in net debt, including a $15-billion loan from Deutsche Telekom. Some shareholders think the terms of the loan are unfair to MetroPCS.

Shareholders will vote on the deal the week of April 11, 2013, and Deutsche Telekom, which does not seem to have made a final decision on the new terms, might want to defuse the valuation issue, which has owners of about 12 percent of MetroPCS stock objecting to the current terms.

Deutsche Telekom only needs a simple majority of shareholders for the deal to pass, but dissidents are campaigning actively for a “no” vote on the present deal. For T-Mobile USA, the issue is what might happen if the deal were to come apart.

Sprint has, in the past, been interested in combining with T-Mobile USA, and Charlie Ergen might act as well if he thought there was a chance to force either Sprint or T-Mobile USA to partner with him to create a new Long Term Evolution network using Dish Network spectrum.

The danger for T-Mobile USA is the risk that the deal does not gain shareholder approval, opening the doors for other moves by Sprint or Dish Network.

Paulson & Co, the biggest MetroPCS shareholder, and P. Schoenfeld Asset Management, another big shareholder, both vowed to oppose the deal because of concerns about the valuation and the amount of debt being assigned to the combined company.

Proxy advisory firms ISS and Glass Lewis also advised MetroPCS shareholders to vote against the proposal.

T-Mobile USA, though unhappy to be faced with raising its bid, might fear more yet another failure of merger plans, after the collapse of the sale to AT&T. Behind in its spectrum holdings, compared to all of its major national competitors, T-Mobile USA needs MetroPCS spectrum as much as the subscriber base and other assets.