Sprint Nextel Corp. (S:US) is holding off on an immediate counterbid for MetroPCS Communications Inc. (PCS:US) to gain time to scrutinize the carrier’s planned combination with T-Mobile USA Inc., said people familiar with the situation.
Sprint’s board (S:US) met last week after Deutsche Telekom AG (DTE) disclosed a proposal to combine its T-Mobile unit with MetroPCS, said one of the people, who asked not to be named because the process is private. Before making an offer, Sprint wants to see Deutsche Telekom’s proxy filing, which companies typically release one to two months after a deal announcement, to see how the German company negotiated its agreement, said the people.
Sprint may have as much as three months to bid before MetroPCS investors vote on the T-Mobile deal, said the people. The added heft of MetroPCS may help the third-largest U.S. wireless carrier compete more effectively with market leaders Verizon Wireless and AT&T Inc. (T:US) Chief Executive Officer Dan Hesse said last month that Sprint’s scale puts it at a disadvantage.
Representatives for Sprint and MetroPCS declined to comment.
MetroPCS, which is trading as a proxy for the new company until the deal with T-Mobile is completed, dropped 3.8 percent to close at $12.04 in New York. Sprint rose 1.8 percent to $5.04.
“By waiting, Sprint has been able to remind MetroPCS investors where their stock is headed without a Sprint counterbid,” said Walt Piecyk, an analyst with BTIG LLC in New York. “This could be very useful in future negotiations.”
This wouldn’t be Sprint’s first run at Richardson, Texas- based MetroPCS. In February, the carrier offered $5.15 in cash per share and a stock swap to take control of MetroPCS, a deal that valued the pay-as-you-go operator at about 30 percent more than its trading price, said people with knowledge of the situation. That transaction would have given MetroPCS shareholders (PCS:US) a 30 percent stake in the combined company, the people said.
Given the collapse of AT&T’s proposed $39 billion takeover of T-Mobile in December, Sprint’s board felt less pressured to do a deal, said the people. Sprint’s talks with MetroPCS started in the fall of 2011, before the AT&T offer crumbled, said one of these people. Sprint’s board ultimately vetoed the takeover, people with knowledge of the offer said at the time.
Sprint’s offer would have valued MetroPCS at about $8 billion, including debt, people familiar with the plan had said. Since then, Sprint’s stock has doubled, outperforming MetroPCS, which had gained 4.2 percent over the same period through yesterday. MetroPCS has a market value of about $4.5 billion, while Overland, Kansas-based Sprint is valued at about $15 billion.
If Sprint were to again offer a 30 percent premium on the shares, that would be about $16.26, based on yesterday’s closing price.
Sprint could bid as little as $13 a share to top the T- Mobile offer for MetroPCS, which would please Sprint’s shareholders, BTIG’s Piecyk said today in an e-mail. He has a neutral rating on Sprint and MetroPCS shares.
Return to Fray?
Deutsche Telekom said Oct. 3 it agreed to combine T-Mobile with MetroPCS in a reverse merger that would make its Bellevue, Washington-based unit a publicly traded company. The deal gave MetroPCS shareholders $1.5 billion in cash, or about $4.09 a share, and 26 percent of the combined company.
If Sprint chooses not to make an overture now, it could try to buy the combined company later, said one of the people familiar with the situation, though that deal may face regulatory obstacles.
One issue that may hinder a counteroffer from Sprint is the breakup fee, a person with knowledge of the situation said this month. MetroPCS would pay $150 million if it backs out of the current deal. The reverse breakup fee for T-Mobile is $250 million. Bonn-based Deutsche Telekom is prepared for a counterbid from Sprint and would consider better terms if necessary, another person familiar with the matter said this month.
The attention from Sprint and T-Mobile underscores MetroPCS CEO Roger Linquist’s description of his company as “the belle of the ball” in a market ripe for acquisitions. Sprint may have an edge in pursuing MetroPCS because it uses the same kind of network standard: code division multiple access, or CDMA.
T-Mobile relies on the global system for mobile communications, or GSM. All the companies are moving toward a new standard called long-term evolution, or LTE. Still, having similar networks may make a Sprint-MetroPCS tie-up more palatable, said Chris Larsen, an analyst at Piper Jaffray & Co. in New York.
“A merger of these two would be able to attain synergies faster and have less network integration risk,” he said.
To contact the reporters on this story: Serena Saitto in New York at firstname.lastname@example.org; Scott Moritz in New York at email@example.com
To contact the editors responsible for this story: Nick Turner at firstname.lastname@example.org; Jeffrey McCracken at email@example.com