T-Mobile/MetroPCS merger gets thumbs-down from influential proxy adviser

Institutional Shareholder Services, an influential proxy advisory firm seen as an arbiter between warring shareholders, recommended MetroPCS (NYSE:PCS) shareholders vote against the carrier's proposed merger with T-Mobile USA on April 12.

ISS said that shareholders would receive an unfair share of the combined company and that MetroPCS would be able to survive as a standalone company. The recommendation gives a boost to Paulson & Co. and P. Schoenfeld Asset Management LP, major MetroPCS shareholders that have argued the deal would leave MetroPCS shareholders with too little equity and that the new company will have too much debt. 

MetroPCS has repeatedly batted back against those claims, and the wrangling is significant because the deal has received all necessary approvals from federal regulators and just needs shareholder approval. 

"The question remains, 'Why now?'" ISS said. "Absent merging with T-Mobile, PCS will still have $1.5 billion of cash to dedicate to new spectrum in some way and could continue operating as a stand-alone company."

"In light of the negative market response to this transaction (shares are down 14.4% since announcement), the lower equity split than justified by the contribution of PCS to the combined entity, and the potential for PCS to continue to thrive as a stand-alone company, shareholders should vote against this transaction," ISS said in its report on the deal, according to the wall Street Journal.

MetroPCS has said that no other companies have made a bid for MetroPCS since its deal with T-Mobile was announced last fall. 

T-Mobile USA CEO John Legere expressed strong confidence Tuesday that MetroPCS shareholders will approve the deal. "It will be approved," Legere said at an event to unveil T-Mobile's new plans and announce the launch of its LTE network and the iPhone, "despite the greedy hedge funds that are trying to take a double-dip out of that process."

"If anyone is being greedy here, it is Deutsche Telekom," Paulson & Co. said Wednesday in a statement. "While we support industry consolidation, the current proposal is a bad deal for MetroPCS shareholders. We believe MetroPCS is worth more as a stand-alone company."

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

Michael Mahoney, senior managing director at Falcon Point Capital, told Bloomberg that the deal's complexity may make MetroPCS investors rely more heavily on shareholder-advisory firms like ISS. "Because of the unique structure of this deal, ISS's decision is more important," said Mahoney, who doesn't own shares in either MetroPCS or Deutsche Telekom. Glass, Lewis & Co., another advisory firm, is also preparing a report on the deal and may release its recommendation as soon as today.

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

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