Amid growing shareholder opposition, MetroPCS Communications Inc (NYSE:PCS) wrote a letter to shareholders, telling them that its proposed merger with T-Mobile USA is the best strategic alternative for the company. Urging shareholders to vote for the merger, it said the company considered the deal only after a multi-year evaluation process.
Last year, MetroPCS Communications Inc (NYSE:PCS) agreed to merge with T-Mobile USA, the U.S. subsidiary of Deutsche Telekom. The deal has received approval of the Department of Justice. The proposed deal is a reverse merger, meaning the smaller wireless carrier MetroPCS will swallow its larger competitor. Under the proposed terms, Deutsche Telekom AG (FRA:DTE) (PINK:DTEGY) (ETR:DTE) shareholders will get 74 percent stake in the combined company, while the remaining 26 percent will be owned by MetroPCS shareholders.
On Friday, MetroPCS Communications Inc (NYSE:PCS) postponed the date for shareholders’ voting on the merger from March 28 to April 12. The company issued the letter to shareholders after its largest shareholder John Paulson-led Paulson & Co. joined another hedge fund P. Schoenfeld Asset Management to oppose the proposed merger.
Both the hedge funds argue that the combined firm will have too much debt that will prevent it from competing effectively with its peers. They also called the interest rate charged by Deutsche Telekom AG (FRA:DTE) (PINK:DTEGY) (ETR:DTE) unreasonable. Furthermore, P. Schoenfeld Asset Management said the 26 percent stake being offered to MetroPCS Communications Inc (NYSE:PCS) shareholders diminishes the company’s value.
However, MetroPCS continues to defend the merger. Calling the proposed terms of the deal “compelling,” MetroPCS said the merger addresses its competitive disadvantages and critical spectrum needs. And it will allow the company to expand into major metro areas where MetroPCS has little or no presence.
The fifth largest U.S. wireless carrier said Tuesday that the proposed merger is more lucrative than standalone MetroPCS. If you take into account projected cost synergies, the deal offers 70-93 percent premium over per share value of MetroPCS on a standalone basis.
MetroPCS Communications Inc (NYSE:PCS) also addressed shareholders’ concerns, saying that there are misconceptions among shareholders about the proposed merger. The leverage is appropriate for the combined entity, and the debt terms are market-based.
Last month, MetroPCS Communications Inc (NYSE:PCS) reported 65 percent decline in its fourth quarter earnings as higher expenses outweighed the revenue increase. MetroPCS shares were down 1.71 percent to $10.32 at 11:20 AM EDT.