The parent company of T-Mobile, today agreed to buy MetroPCS, with an aim of helping the mobile company to compete with the bigger players in the industry.
In a statement, the companies said they would combine their efforts to roll out a high-speed 4G LTE network. The deal, T-Mobile hopes, will give the new venture the “expanded scale, spectrum and financial resources to aggressively compete with the other national U.S. wireless carriers”.
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The deal between T-Mobile and MetroPCS Communications Inc (NYSE:PCS) is expected to help T-Mobile gain more customers and resources to build out a next-generation data network. The merger will also make T-Mobile a more robust competitor to Sprint Nextel Corporation (NYSE:S), particularly in low-cost cellphone service. The acquisition will help T-Mobile to expand its customer base to 42.5 million users, and also to significantly close the gap with Sprint, the No. 3 player, with 56.4 million customers. The combined company will have nearly $25 billion in revenues, and $6.3 billion in profits. The deal will help T-Mobile to save about $6 billion to $7 billion on costs. MetroPCS Communications Inc (NYSE:PCS) is a no-contract wireless carrier and has a strong presence in the lower end of the market. Both companies are a perfect fit, as both have rights to LTE spectrums in the same band.
As per the deal, MetroPCS will go for a 1-for-2 reverse stock split, and pay out $1.5 billion in cash to its existing shareholders or about $4.09 a share. After paying the existing shareholders, MetroPCS will then issue shares to Deutsche Telekom AG (FRA:DTE) (ETR:DTE) (PINK:DTEGY) (T-Mobile’s parent company) for a 74 percent of the stake, leaving existing MetroPCS investors with a 26 percent stake.
“We are extremely pleased to announce this transaction with MetroPCS, which enhances Deutsche Telekom’s position in the expanding U.S. wireless market, the T-Mobile and MetroPCS brands are a great strategic fit – both operationally and culturally,” René Obermann, the chief executive of Deutsche Telekom AG (FRA:DTE) (ETR:DTE), said in a statement. “The new company will be the value leader in wireless, with the scale, spectrum, and financial, and other resources to expand its geographic coverage, broaden choice among all types of customers, and continue to innovate”.
The deal, which is expected to be closed by the first half of 2013, awaits approval from MetroPCS shareholders and regulators. John Legere, T-Mobile’s president and chief executive, will retain his title with the new company, while MetroPCS chief financial officer and vice chairman J. Braxton Carter will serve as chief financial officer for the new entity.
Though the larger company will retain the T-Mobile name, MetroPCS and T-Mobile will operate as separate consumer units.