RPT-Fitch: Sweetened Bid Shows Deutsche Telekom Needs MetroPCS
April 12 (Reuters) - (The following statement was released by the rating agency)
Deutsche Telekom's decision to sweeten its offer for MetroPCS will not have a significant impact from a creditor's perspective, but does indicate how important it is for the group to improve its US operations, Fitch Ratings says. The acquisition of MetroPCS would ease some of DT's sub-scale disadvantages in the US.
The new offer lowers the debt burden on the new company that would be created through the merger of MetroPCS and DT's T-Mobile USA unit. However, the equity interest that DT would hold in the combined business would not change and we would treat DT's interest in the new subsidiary on a full consolidation basis.
Loans to the US business would be treated as an intra-group transaction and even if DT's stake dropped in the future, we would not view the debt to DT as a cash-like asset, so it would have no impact on leverage. The impact of the other main change to the deal - a lower interest rate on the loans - would be minimal for DT.
The deal would have several strategic benefits. It would significantly improve the spectrum portfolio in the US, which should lead to a smoother roll-out of high-speed data services. It would also increase the business' overall size, reducing the disadvantage of having to keep up with larger rivals in network coverage, retail outlets and marketing. It would give DT more strategic options in the future as the combined T-Mobile USA/MetroPCS will be a US-listed company.
However, it is unclear how much success the new company will have with its plan to migrate Metro PCS's subscribers to T-Mobile USA's network and the deal does not address the long-term decline in post-paid or contract customers at T-Mobile USA. These customers on average generate more than double the revenue-per-user of pre-pay customers and T-Mobile USA has been losing contract subscribers since Q309.
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