Largest MetroPCS shareholder Paulson expresses doubts about T-Mobile deal

Continued unrest over deal with Deutsche Telekom
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The largest single MetroPCS (NYSE:PCS) shareholder, hedge fund Paulson & Co., said it may vote against MetroPCS' merger with Deutsche Telekom's T-Mobile USA, adding a new voice to shareholder unrest over the deal.

Paulson & Co., run by billionaire hedge fund manager John Paulson, purchased 8 million shares of MetroPCS last quarter, bringing its stake in the company up to 8.7 percent. The comments from Paulson come after P. Schoenfeld Asset Management disclosed that it sent a letter to MetroPCS' board Jan. 30 announcing its opposition to the planned transaction, arguing that it undervalues MetroPCS and would load it down with debt that would be "unsustainable" for a company of its size and credit rating.

According to Bloomberg, Paulson agreed and said the new company would have "too much debt, the interest rate on Deutsche Telekom's debt financing is too high and the exchange ratio is too low for PCS stockholders. It may be more prudent for PCS to remain independent and explore other higher value alternatives."

Under the terms of the deal, MetroPCS will engage in a reverse-merger with T-Mobile, and 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.

Schoenfeld, which held around 2 percent of MetroPCS in October, said that MetroPCS shareholders should get 37 percent of the new company rather than 26 percent.

DT did not immediately respond to the Paulson statement but had earlier said in a statement that it stood by the deal. DT argued the transaction "will substantially benefit the shareholders and customers of both companies by creating a new company that will be the leading wireless value carrier with expanded scale, spectrum and financial resources to compete across the entire U.S. market."

MetroPCS told Bloomberg in a statement that its "board of directors believes that the proposed combination with T-Mobile is in the best interests of MetroPCS and all MetroPCS stockholders."

DT and MetroPCS expect the deal to close by the middle of the year; regulators still need to approve it in addition to MetroPCS shareholders. The deal will boost T-Mobile's spectrum reserves, especially in the 1700 MHz AWS band, allowing it to deploy 2x20 MHz channels for LTE in many markets.

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

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