Sprint bid for MetroPCS faces range of complications

Sprint Nextel's (NYSE:S) board will meet today to consider a counter offer for MetroPCS (NYSE:PCS), according to the Wall Street Journal. However, if Sprint attempts to steal MetroPCS from Deutsche Telekom's T-Mobile USA, the effort will be complicated by Sprint's network upgrade plan and the terms of the current deal between T-Mobile and MetroPCS.

Click here for complete coverage of T-Mobile's bid for MetroPCS.

Bloomberg, the Wall Street Journal and Reuters, all citing unnamed sources familiar with the matter, reported that Sprint's board is considering an counter offer. However, it is unclear when such an offer might be made or what form the bid might take. According to Reuters, Sprint is deciding whether to make a bid for MetroPCS or wait to make a move on the combined company, in which Deutsche Telekom will hold a 74 percent stake.

Sprint has declined to comment on the fresh reports. "We made an attractive offer to the MetroPCS shareholders and are convinced that a merger is beneficial for both companies," a DT spokesman told the Journal. "If there is a counter bid we will comment."

Any Sprint bid for MetroPCS would be complicated by a number of factors. First, Sprint is in the middle of a complicated, multibillion-dollar network modernization plan called Network Vision. However, a Sprint-MetroPCS tie-up might be easier than the combination of T-Mobile and MetroPCS given that both Sprint and MetroPCS are CDMA operators moving to LTE. T-Mobile's merger plan involves moving all of MetroPCS' CDMA customers off that network and onto a combined LTE network from MetroPCS and T-Mobile that would run on AWS spectrum. T-Mobile said it expects all of MetroPCS' customers to be moved onto the new, combined network by 2015. "A merger of [Sprint and MetroPCS] would be able to attain synergies faster and have less network integration risk," Piper Jaffray analyst Chris Larsen told Bloomberg.

The possibility of a Sprint counter-offer is further complicated by the structure of the T-Mobile/MetroPCS deal, according to analysts. According to documents filed with the Securities and Exchange Commission, DT would pay MetroPCS $250 million if it backed out of the deal because of regulatory obstacles, and MetroPCS would pay DT $150 million if it backs out of the deal.

And, according to the NYT, DT may have the upper hand in any bidding war. The newspaper noted that MetroPCS cannot exit the deal even if a competing bid is made, unless its shareholders vote against DT.

BTIG analyst Walter Piecyk noted that Sprint could make a $15 per share offer for MetroPCS and might find more synergies than T-Mobile would. "Sprint would also have an easier time than T-Mobile at identifying synergies as MetroPCS customers' phones already work on Sprint's network, thereby speeding the pace of integration," he wrote. "We believe MetroPCS spectrum also has greater value to Sprint since in many key markets it is right next to the 5x5 [1900 MHz PCS] G Block that Sprint is using to deploy LTE. We estimate that Sprint would have to realize less than $150 million of annual synergies in order to lower the implied cost of their purchase to 5.0x, which is roughly where its own stock is trading."

For more:
- see this Bloomberg article
- see this WSJ article (sub. req.)
- see this Reuters article
- see this NYT article
- see this separate Bloomberg article
- see this BTIG blog post (reg. req.)

Special Report: T-Mobile USA and MetroPCS merge: Complete coverage

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