With shareholder approval essentially all that stands between T-Mobile USA merging with MetroPCS (NYSE:PCS), one minority institutional MetroPCS investor is doing all it can to draw attention to what it sees as the flaws in the deal. P. Schoenfeld Asset Management LP, whose holdings represent about 2 percent of MetroPCS shares, sent a letter to MetroPCS shareholders urging them to vote against the deal and promising to deliver a white paper that explains its opposition.
The move by Schoenfeld, which refers to itself as PSAM, comes just after the FCC approved the deal at the bureau level rather through a formal vote by the FCC's five commissioners. The Department of Justice has also given its assent. And indeed, the letter from PSAM is a response to the letter MetroPCS itself sent to shareholders urging them to approve the deal. Shareholders will meet April 12 to decide whether to agree to the transaction.
PSAM has been arguing for weeks that the deal is "irresponsibly and inefficiently structured" and that MetroPCS has better options than the T-Mobile deal, including continuing to operate as a standalone business. PSAM has argued that the merger will result in too much debt for the new company and that MetroPCS shareholders will not get enough equity.
PSAM's argument has been echoed by Paulson & Co., run by billionaire hedge fund manager John Paulson, which holds a 9.9 percent stake in MetroPCS and is the company's the largest single shareholder.
Under the terms of the transaction, 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. Metro's minority shareholders want MetroPCS to retain a greater share of the combined entity than 26 percent.
"Given the lack of independent and current analysis available to shareholders, we felt it appropriate to retain an independent financial advisor, Houlihan Lokey, to assist us in evaluating the TM Deal," PSAM wrote in its letter. "We are preparing a 'white paper' that will make an overwhelming and compelling case to vote" against the merger.
"We note that MetroPCS Chairman Roger Linquist recently sold approximately $20 million in PCS shares (representing approximately 28% of his share position in PCS) despite recently signing shareholder letters that communicated an expected post-transaction PCS share value that is 65-85% higher than the prices at which his recent sales occurred," PSAM wrote in the letter. "If Linquist is so confident the company will achieve these projected, pro forma share values in the near future, why is he selling and not buying PCS shares?"
In its own letter to shareholders, sent earlier this week, MetroPCS said the deal will "address critical spectrum needs and competitive disadvantages; permits MetroPCS brand expansion into unserved and underserved major metro areas; and improves the customer value proposition through a stronger, deeper data network and a broader, better device lineup."
MetroPCS said the deal will result in $6 billion to $7 billion in synergies and will also allow the combined company to deploy "at least" a 2x20 MHz LTE network in around 90 percent of the top 25 U.S. metro areas by early 2014.
- see this release
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