MetroPCS Communications Inc. (PCS:US), seeking to win support for its merger with T-Mobile USA Inc., said two shareholder-advisory firms are now recommending the deal after the agreement’s terms were sweetened.
Institutional Shareholder Services Inc. and Glass, Lewis & Co. reversed their positions after previously recommending against the merger, Richardson, Texas-based MetroPCS said yesterday in a statement. Deutsche Telekom AG (DTE), the parent of T- Mobile, revised the terms of the deal last week to impose less debt on the combined company.
MetroPCS investors are scheduled to meet April 24 to vote on the transaction, which was first announced in October. The agreement would unite the fourth- and fifth-largest U.S. wireless carriers, creating a bigger competitor to Verizon Wireless, AT&T Inc. (T:US) and Sprint Nextel Corp. (S:US)
“We are pleased that both ISS and Glass Lewis recognize the enhanced stockholder value and compelling benefits created by the amended terms of the proposed combination,” MetroPCS Chief Executive Officer Roger Linquist said in yesterday’s statement.
The endorsement by the advisory firms follows a reversal by Paulson & Co., MetroPCS’s biggest shareholder, which also switched to favoring the deal after earlier spurning it. Deutsche Telekom won their support with a revised bid on April 10 that it called a “best and final offer.” The German company cut the amount of debt it’s imposing on the combined entity by $3.8 billion. It also lowered the interest rate it plans to charge on the loan by half a percentage point.
The move assuaged concerns that the new company would be loaded with too much debt, hindering its ability to compete. Deutsche Telekom also extended the lockup period during which it’s barred from publicly selling shares in the combined company. The time frame will now be 18 months, up from six. That may reassure investors that Deutsche Telekom doesn’t plan to cut and run.
As part of the transaction, MetroPCS investors will get $1.5 billion of cash and a 26 percent stake in the new entity.
“Given the reduced debt load that will be carried by the new company and the resulting appropriate equity split granted to PCS shareholders, and the increased commitment to the combined company exhibited by DT’s extension of the lockup period, support for the merger is warranted,” Rockville, Maryland-based ISS said in its report.
The Deutsche Telekom offer beats the alternative -- MetroPCS trying to remain independent, Glass Lewis said.
“Given our opinion that MetroPCS’s long-term prospects as a stand-alone company are ultimately capped, and that an eventual merger with a larger strategic partner is inevitable, we believe the merger with T-Mobile as presently constructed represents MetroPCS’s best alternative,” the San Francisco- based firm said in its report.
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