The much talked about
MetroPCS Communications, Inc.
) and T-Mobile USA, subsidiary of
Deutsche Telekom AG
) merger has finally put an end to all anticipation by winning
the Federal Communications Commission (FCC) approval.
The FCC green light casts a positive impact on the deal in
respect of consumer and market competitiveness. We hope that it
will play a pivotal role in shaping the network infrastructure of
the combined company, bringing quality service to consumers.
Besides FCC, the proposed merger has been approved by Board of
Directors of both, MetroPCS and Deutsche Telekom. However, the
deal currently remains subject to MetroPCS shareholders'
approval, expected on Apr 12. The deal is expected to close in
the first half of 2013.
According to the deal terms, MetroPCS would be entitled to a 24%
stake in the combined company and Deutsche Telekom would own 76%.
The transaction process of the deal could be viewed as
recapitalization of MetroPCS.
MetroPCS will issue a reverse stock split of 1:2 and pay cash
of $1.5 billion to shareholders, which come approximately $4.09
per share prior to the reverse stock split. In addition, MetroPCS
will acquire T-Mobile shares in totality in exchange for a 74%
stake of its own transferred to Deutsche Telekom.
Under the deal terms, Deutsche Telekom will convert its existing
inter-company debt into new $15 billion senior unsecured notes of
the combined company and provide an unsecured revolving credit
facility of $500 million to the combined company.
Further, Deutsche Telekom will also facilitate the merged
company's operations with $5.5 billion backstop commitment for
certain MetroPCS third-party financial dealings. If the deal
materializes, MetroPCS will continue to trade in the U.S. market
with the name changed to T-Mobile.
Beyond this, the deal is expected to result in accelerated
financial growth with estimated five-year CAGR for revenues,
EBITDA and free cash flow in the range of 3%-5%, 7%-10% and
15%-20%, respectively. Apart from financial benefits, Merger
between MetroPCS and T-Mobile would boost their operation
capabilities in the U.S. and safeguard the market share of these
companies against rivals like
Verizon Communications Inc.
Currently, MetroPCS and T-Mobile have over 9 million and 33
million subscribers, which combined, would form a subscriber base
of more than 40 million for the combined company.
Further, the deal would add to spectrum capacity and result in
higher penetration of LTE networks that support speed upto 20x20
MHz of 4G LTE in several regions. T-Mobile would be able to
benefit from MetroPCS' superior market position in no contract
wireless services, while MetroPCS will gain from T-Mobile's
advance B2B services and Mobile virtual network operator (MVNO)
However, concerns still surround the future of the deal as it
heads for the final roadblock - shareholder approval. Despite
FCC's approval, the merger faces condemnation by two major
shareholders of MetroPCS - P. Schoenfeld Asset Management and
Paulson & Co - both, having combined shareholding of
The issues raised by these shareholders revolve around the level
of debt the deal would impose upon merger. Further, they also
remain miffed over the deal terms, which entitle 26% of the
equity to MetroPCS shareholders as against 76% to T-Mobile USA.
However, MetroPCS have tried to resolve these issues by urging
shareholders to vote in favor of the deal.
The company issued a letter on Tuesday this week stating that
the deal offers shareholders a 70% to 90% premium. In addition,
the combined debt capital for the new company would be at similar
levels compared to other big players in the industry and with
historical average of MetroPCS.
DEUTSCHE TELEKM (DTEGY): Free Stock Analysis
METROPCS COMMUN (PCS): Free Stock Analysis
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MetroPCS has a Zacks Rank #3 (Hold).