The proposed merger of T-Mobile USA and MetroPCS Communications Inc (NYSE:PCS) gets an approval from the Department of Justice after allowing an important waiting period required by an antitrust regulation to expire. T-Mobile USA, is a subsidiary of Deutsche Telekom AG (FRA:DTE) (PINK:DTEGY) (ETR:DTE).
According to the press statement of MetroPCS Communications Inc (NYSE:PCS), the expired waiting period is mandated by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 in connected with its proposed merger with T-Mobile USA. The expiration of the waiting period indicated that the DOJ has no objection to the merger.
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The transaction still needs to obtain the approval of the Federal Communications Commission (FCC) regarding the transfer of spectrum licenses. In addition, the companies also need to gain the approval of the Committee on Foreign Investment since Deutsche Telekom is a German company.
Furthermore, MetroPCS Communications Inc (NYSE:PCS) needs to get the approval of the transaction from its shareholders during a special meeting on March 11, 2013. The board of directors of the company is unanimously recommending the merger to its shareholders.
Paulson & Co., the hedge fund managed by John Paulson already expressed its decision to vote against the merger. According to him, the structure of the transaction is not in the best interest of shareholders citing that the pro forma company has a too much debt with a very high interest. If the transaction will be completed, the combined company will incur a huge amount of debt of around $23.2 billion including a $15 billion intercompany note held by Deutsche Telekom AG (FRA:DTE) (PINK:DTEGY) (ETR:DTE). The combined company would pay an interest rate of 7 percent on the $15 billion intercompany debt.
In a letter to shareholders, Paulson emphasized that the transactions will create “disproportionate risks” for them and MetroPCS Communications Inc (NYSE:PCS) is more valuable as an independent company than combining with T-Mobile USA.
The MetroPCS/T-Mobile transaction is a reverse merger. T-Mobile USA, which not yet a public company will combine with MetroPCS, which is already a public company. As the parent company of T-Mobile, Deutsche Telekom AG (FRA:DTE) (PINK:DTEGY) (ETR:DTE) will own 74 percent stake in the combined company and the remaining 26 percent will be held by Metro PCS shareholders and they will receive an additional $1.5 billion cash.
Paulson said the equity split is unfair because MetroPCS Communications Inc (NYSE:PCS) will contribute 42 percent, but shareholders will only get 26 percent.