MetroPCS urges shareholders to approve T-Mobile deal

MetroPCS (NYSE:PCS) sent a letter to its shareholders urging them to approve its planned merger with T-Mobile USA when they vote on the deal April 12, arguing that minority shareholders are spreading misperceptions about the agreement. Meanwhile, a lawyer for the Communications Workers of America union said in an FCC filing that the commission may approve the deal at the bureau level rather through a formal vote by the FCC's five commissioners.

MetroPCS has come under intense scrutiny in recent weeks as investors have criticized the terms of the deal and the debt the combined entity will carry. In late February Paulson & Co., run by billionaire hedge fund manager John Paulson, said it would oppose the deal unless the companies sweetened the offer for MetroPCS shareholders. Paulson, the largest single MetroPCS shareholder, holds a 9.9 percent stake in MetroPCS. Paulson said that the merged company would have "too much debt at too high an interest rate to be competitive." P. Schoenfeld Asset Management LP, whose holdings represent about 2 percent of MetroPCS shares, has also urged MetroPCS to push for better terms from T-Mobile parent Deutsche Telekom. The investors have also argued that MetroPCS should get a bigger share of the company.

In the letter to shareholders, 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.

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. The minority shareholders want MetroPCS to retain a greater share of the combined entity than 26 percent.

In the letter, MetroPCS said the ownership breakdown of the combined firm is fair. "A less favorable ownership stake ranging from 17% - 24% would result after appropriate deduction for MetroPCS' $1.5 billion of cash reserved for spectrum acquisitions and adjustments to EBITDA, as disclosed in the MetroPCS amended definitive proxy statement," the company said.

Meanwhile, in an FCC filing CWA attorney Monica Desai said the union understands that "the FCC may be considering issuing an order" on the deal at the bureau level and not at the full commission level. The CWA is concerned the deal will lead to large job cuts and outsourcing of jobs. Desai wrote that the size of the deal and the number of employees involved--38,000--means that it is larger than many deals handled at the full commission level.

The FCC declined to comment, according to Bloomberg, but if the deal were handled at the bureau level that would indicate that the FCC staff did not think it was controversial enough to warrant a vote from the commissioners. The Department of Justice has already given its assent to the deal.

For more:
- see this MetroPCS letter
- see this WSJ article (sub. req.)
- see this FCC filing
- see this Bloomberg article

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