October 16, 2012
MetroPCS Shareholders File Suit To Fight T-Mobile Merger
Peter Suciu for redOrbit.com — Your Universe Online
Call it the tale of two mobile carrier mergers and acquisitions. One could be the “best of acquisitions” while the other could be the “worst of mergers.” While the Softbank investment that would see the number-three Japanese carrier buy a 70 percent stake in number-three carrier Sprint Nextel could save the U.S. carrier and allow it compete with the juggernauts Verizon and AT&T, shareholders of Delaware-based MetroPCS aren´t as a keen to see a merger with T-Mobile. Now company shareholders at MetroPCS are looking to block the deal.
On Monday shareholders of MetroPCS, the fifth-largest mobile telecommunications carrier in the United States, called the deal “drastically undervalued,” and claimed that MetroPCS´ board is “conflicted and serving its own financial interests.”
“The process leading to the proposed acquisition was tainted by conflicts, tilted towards T-Mobile and driven entirely by the board and company management, who together control 15.4 percent of PCS´ outstanding stock and seek liquidity for their illiquid holdings,” the suit reads.
The lawsuit´s plaintiffs also argue that senior management would be the ones getting the best deal out of this merger. The stockholders noted the company had traded as high at $18.69 a share in May of 2011, and was recently pegged by a stock analyst as a set to reach $18.00 per share. However, under the agreed upon terms of the deal, MetroPCS declared for a 1-for-2 reverse stock split and make would a $1.5 billion cash payment to shareholders, paying out only $4.09 a share.
The company would also issue 74 percent of the remaining common stock to Deutsche Telekom and the plaintiff shareholders who would own the remaining 26 percent of the newly combined company, which would have a value of $12.48 per share.
What is notable in this is that AT&T actually attempted to buy T-Mobile before regulators nixed the deal last year. If it had been approved, AT&T would have paid $39 billion for the fourth-largest American carrier. Meanwhile, this week Softbank offered $20.1 billion for the 70 percent stake in Sprint, suggesting that yesterday´s prices are very much just that: yesterday´s prices.
T-Mobile CEO John Legere has also insisted this deal is, at its core, simply about gaining more spectrum in an effort to remain competitive against the number-one and number-two U.S. mobile carriers Verizon Wireless and AT&T.
“This deal is not about simply surviving,” Legere said during a press conference call when the merger was announced. "It's about driving growth.”
Analysts have argued this deal will likely be approved as it is more likely to improve rather than inhibit competition, especially given that number three Sprint and number four T-Mobile trail behind Verizon and AT&T, with MetroPCS having just 9.5 million subscribers as of January of this year.
Regulatory approval from the Federal Communications Commission as well as the U.S. Department of Justice is still necessary for this deal to go through. That approval, if it even happens, isn´t expected to come through until the first half of 2013. And given that federal regulators had previously nixed the AT&T attempt to buy T-Mobile, this is far from just needing to dot the I´s and cross the T´s.