Shareholders Slam PCS/T-Mobile Merger Deal
The MetroPCS Communications, Inc. (PCS) and T-Mobile USA merger faces uncertainty prior to the shareholder round for its approval. In a recent press release, MetroPCS stated that its shareholder, P. Schoenfeld Asset Management LP, issued a letter questioning the viability of the deal.
P. Schoenfeld has strongly condemned the proposed merger, citing unfair valuation to MetroPCS’ shareholders. The shareholder also criticized that the deal is not properly sketched out. Further, P. Schoenfeld highlights the fact that MetroPCS could have considered other viable options that could have aided in appraising its market value as a stand-alone company.
News regarding the debacle with shareholders’ consent has been hitting headlines since the company received the FCC approval. Another major shareholder, Paulson & Co also condemned the deal on grounds of the high debt level that it would impose on the new entity.
However, last week, MetroPCS issued a letter stating that the deal offers shareholders a 70% to 90% premium. In addition, the combined debt capital for the new company would be similar to that of the other big players in the industry and historical average of MetroPCS.
MetroPCS strongly believes that the merger with T-Mobile USA would boost its operations in the U.S. and safeguard its market share against rivals like AT&T, Inc. (T) and Verizon Communications Inc. (VZ) and Sprint Nextel Corp. (S).
If the deal materializes, it is expected to expedite financial growth with the estimated five-year CAGR for revenues, EBITDA and free cash flow in the range of 3–5%, 7–10% and 15–20%, respectively. Further, Deutsche Telekom will also facilitate the merged company’s operations with the $5.5 billion backstop commitment for MetroPCS third-party financial dealings.
We believe that despite significant progress in the MetroPCS and T-Mobile merger, constant backlash between shareholders add a level of uncertainty to its prospects. Further, such issues adversely affect the market value of the company as these create negative sentiments among investors. MetroPCS has a Rank #3 (Hold).