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March 1, 2013 12:01 am
John Paulson, the billionaire whose hedge fund is the largest shareholder in MetroPCS, has said he will vote against plans to merge the wireless operator with T-Mobile USA, owned by Deutsche Telekom.
Paulson & Co, which controls 9.9 per cent of MetroPCS, has thrown its weight behind Peter Schoenfeld, another hedge fund manager, who objects to the amount of debt attached to the deal.
Mr Paulson said he believed in the strategic merits of the transaction but that “the pro forma company has too much debt at too high an interest rate to be competitive in the well-capitalised US wireless industry”.
Mr Schoenfeld, head of PSAM, argues that MetroPCS shareholders’ share of the merged entity would be “unfair”, and that the interest rate on $15bn of debt financing provided by Deutsche Telekom is “far above market”.
“It would be better for PCS to remain a standalone company while examining opportunities to consummate alternative transactions,” he said.
Mr Paulson agreed with the criticisms of the deal but proposed a change to its terms rather than its abandonment.
Deutsche Telekom and MetroPCS, the sixth-largest US mobile operator with 9.2m prepaid customers, announced in October a plan to fold MetroPCS into T-Mobile USA to create a stronger rival to larger peers Sprint Nextel, AT&T and Verizon Wireless.
Under the terms of the transaction, Deutsche Telekom would be left holding a 74 per cent stake in the combined group, which would operate under the T-Mobile USA name and focus on the low-cost segment of the US market, including prepaid and SIM-only subscribers.
As part of the deal MetroPCS will declare a 1-for-2 reverse stock split and pay $1.5bn in cash to its shareholders.
Mr Paulson said that with capital leases, the merged entity would carry $23.2bn in debt, making it the most leveraged of its peers in the US market, thereby putting it at a competitive disadvantage.
MetroPCS said “the proposed combination with T-Mobile is in the best interests of [the company and its] stockholders and MetroPCS continues to recommend that its stockholders vote in favour of the proposed combination”.
Since the transaction was announced, shares in MetroPCS have declined 28 per cent, to $9.8 per share. If shareholders reject the deal, it would be the second setback for Deutsche Telekom, after US regulators last year rejected a proposed $39bn bid for T-Mobile USA by AT&T.
MetroPCS shareholders could explore other routes for consolidation. A year ago Sprint was close to making an $8bn offer for MetroPCS, financed mostly by the larger group’s shares. Sprint’s board, however, pulled out at the last minute and has since sought to acquire Clearwire, the data network operator.
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