Deutsche Telekom: We won't change T-Mobile/MetroPCS merger terms

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Deutsche Telekom denied a Reuters report that said the company is considering changing the terms of T-Mobile USA's proposed merger with flat-rate player MetroPCS (NYSE:PCS), whose shareholders will vote on the deal April 12.

"We are not considering changing the terms of the proposed merger," DT spokesman Philipp Kornstaedt told FierceWireless.

The report, citing two unnamed sources, said DT is thinking about sweetening the deal to help get approval from MetroPCS shareholders. T-Mobile's parent company had not yet made a final decision on the new terms, the report said. In theory, the terms of the deal could be amended prior to the vote.

Last week the deal came under renewed pressure after two investor advisory firms--Institutional Shareholder Services and Glass, Lewis & Co--came out against the deal. One other advisory firm, Egan-Jones Proxy Services, said it was in favor of the transaction. The deal has received all the necessary approvals from federal regulators.

MetroPCS has been feuding with two of its shareholders, Paulson & Co. and P. Schoenfeld Asset Management LP, known as PSAM, which have argued that the deal is poorly structured and that MetroPCS shareholders are better off rejecting it. MetroPCS has argued repeatedly that the shareholders are distorting the terms of the deal, that no other bidder has emerged since last fall and that MetroPCS shareholders will benefit from being part of the combined company with a stronger spectrum position.

Under the terms of the transaction, MetroPCS will engage in a reverse-merger with T-Mobile and parent Deutsche Telekom will own 74 percent the combined company, which will be public. MetroPCS will also declare a 1-for-2 reverse stock split and pay $1.5 billion in cash to its shareholders. Metro's minority shareholders are concerned about the debt load the new company will take on and want MetroPCS to retain a greater share of the combined entity than 26 percent.

Financial analysts believe DT will need to sweeten its offer to get MetroPCS shareholders to go along. The new entity will take $15 billion of debt from Deutsche Telekom, and analysts at New Street Research LLP think DT may have to cut the debt load by $6 billion, while Nomura Holdings believes MetroPCS shareholders want a larger stake.

"The ISS report was the final straw," New Street analyst Jonathan Chaplin told Bloomberg, arguing that it pushed the likelihood that the deal will not be approved by shareholders "from unlikely to highly unlikely."

PSAM spokeswoman Catherine Jones declined to comment to Bloomberg on whether DT could change the deal terms to make it more favorable.

For more:
- see this Reuters article
- see this separate Reuters article
- see this Bloomberg article

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