MetroPCS Communications, Inc.
(
PCS
) announced that it expects its shareholders to support the
merger deal with T-Mobile USA, a subsidiary of
Deutsche Telekom AG
(
DTEGY
). Market reports suggest that the company is expected to
make a proxy filing with the Securities and Exchange Commission
(SEC) in the near future on its merger deal with -Mobile USA.
The proposed agreement has been approved by the Board of
Directors of both MetroPCS and Deutsche Telekom, but is yet to
receive MetroPCS' shareholders sanction as well as regulatory
approvals along with other conditions. 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
the remaining 76% of the stake. The transaction process of the
deal could be viewed as recapitalization of MetroPCS. MetroPCS
will declare a 1-for-2 reverse stock split and pay $1.5 billion
in cash to shareholders. This comes to approximately $4.09 per
share prior to the reverse stock split. In addition, MetroPCS
will acquire total T-Mobile shares in exchange of 74% of
its own stake 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 a $5.5 billion backstop commitment for certain
MetroPCS third-party financial dealings. If the deal
materializes, MetrPCS will continue to trade in the U.S. market
with the name changed to T-Mobile.
Based on market estimates, the combined company is expected to
have 2012 pro forma revenues of approximately $24.8 billion and
cost synergies of $6-$7 billion. Further, in FY12 the combined
operations are estimated to garner $6.3 billion in adjusted
EBITDA and $2.1 billion in free cash flows alongside incurring
estimated capital expenditures of $4.2 billion. Beyond this, the
deal is expected to result in accelerated financial growth with
an 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, the merger between MetroPCS and
T-Mobile would boost their operation capabilities in the U.S.
Currently, MetroPCS and T-Mobile have over 9 million and 33
million subscribers, which combined together 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 of upto
20x20 MHz of 4G LTE in several regions. T-Mobile would be able to
benefit from MetroPCS' superior market position in a number of
contract wireless services, while MetroPCS will gain from
T-Mobile's advance B2B services and Mobile virtual network
operator (MVNO) platform.
Given all the transactional details and expected synergies,
the deal looks lucrative for both MetroPCS and T-Mobile. However,
there still remains a big unanswered question, which is regarding
their effort to scale up the competitive ladder. The core reason
behind this most awaited liaison is to safeguard their market
share against rivals - like AT&T (
T
) and Verizon Communications (
VZ
) and Sprint Nextel Corp. (
S
). How far the deal will be able to uplift the combined company's
struggling position and withstand the ever rising competition is
something to watch out for.
We currently have our long-term Neutral recommendation on
MetroPCS. For the short-term (1-3 months) the company retains a
Zacks #3 Rank implying a short-term (1-3 months) Hold rating.
DEUTSCHE TELEKM (DTEGY): Free Stock Analysis
Report
METROPCS COMMUN (PCS): Free Stock Analysis
Report
SPRINT NEXTEL (S): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research