Deutsche Telekom improves offer in T-Mobile/MetroPCS merger

T-Mobile USA parent Deutsche Telekom sweetened its offer for MetroPCS (NYSE:PCS) shareholders less than two days before MetroPCS shareholders will vote on a merger between MetroPCS and T-Mobile. The move represents a major concession by DT to MetroPCS shareholders, which have been demanding for weeks that the company improve its offer.

DT said in a statement that under the revised terms of its "best and final offer" it will slash the amount of debt the combined company will hold by $3.8 billion. DT also said it will lower the interest rate it plans to charge on the loan by half a percentage point. The new offer would cut the loans to $11.2 billion, from $15 billion.

Additionally, DT also expanded the so-called "lock-up period," during which it cannot publicly sell shares in the company, to 18 months after the deal closes. Importantly, however, the new offer does not change the ownership structure of the combined company, in which DT will own 74 percent.

MetroPCS delayed the shareholder vote on the deal to April 24. New Street Research analyst Jonathan Chaplin wrote in a research note that the deal should now be able to pass muster with MetroPCS shareholders.

"While the improved offer is below the [$6 billion] in debt reduction we had pushed for, we believe it is enough to get the deal done," Chaplin wrote. "The company has been on the road meeting with investors over the last several weeks and should have a good sense of what would be required to get the deal approved."

"With deal terms settled, the focus shifts to fundamentals, specifically, the turnaround of postpaid," Chaplin wrote. "We continue to think that it could take longer and cost more than mgmt. has forecast. The recent improvement in churn coupled with the iPhone launch should help. The churn reduction seems to be largely driven by the tightening of credit policy and seem to be sustainable; however we don't expect much improvement from here."

MetroPCS has been feuding with two of its shareholders, Paulson & Co. and P. Schoenfeld Asset Management LP, known as PSAM, which argued that the original deal was poorly structured and that MetroPCS shareholders should have rejected 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. Metro's minority shareholders have said they 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.

PSAM said it was pleased Deutsche Telekom had improved the terms and said it was reviewing the new offer, according to the Wall Street Journal.

For more:
- see this Bloomberg article
- see this Reuters article
- see this WSJ article (sub. req.)

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