ISS recommends vote in favor of MetroPCS/T-Mobile USA deal

NEW YORK, April 17 Wed Apr 17, 2013 7:04pm EDT

NEW YORK, April 17 (Reuters) - Proxy advisory firm ISS said on Wednesday that MetroPCS Communications Inc shareholders should vote in favor of the wireless service provider's merger with T-Mobile USA because the proposed terms of the deal were sweetened.

T-Mobile USA's parent company, Deutsche Telekom AG , improved its offer on April 10 by reducing the proposed debt load of the combined company following complaints from activist shareholders and advisory firms ISS and Glass Lewis.

ISS, the biggest U.S. proxy advisory firm, recommended that MetroPCS shareholders vote against the original proposal, but now says the smaller debt load and other changes make the offer much more attractive to shareholders.

ISS's report came the day after smaller proxy advisory firm Glass Lewis gave its blessing to the deal.

If the offer is approved by shareholders at a special meeting scheduled for April 24, MetroPCS shareholders would receive $4.06 per share in cash plus stock equivalent to 26 percent of the combined company. Deutsche Telekom will own the rest.

To placate MetroPCS shareholders, the German operator said it would cut proposed intercompany debt by $3.8 billion to $11.2 billion and cut interest on the debt by 50 basis points for the merged company.

In addition, the revised offer extends the lockup period during which Deutsche Telekom is prohibited from publicly selling shares in the combined company to 18 months from the original six.

The improved terms "have enhanced the economic value PCS shareholders will receive in this merger," ISS said in its report.

Activists Paulson & Co and P. Schoenfeld Asset Management (PSAM), which previously complained about the debt load, both said they plan to vote for the new offer, subject to review. PSAM said it would withdraw its proxy fight against the companies.

Previously, only Madison Dearborn Partners, the second-largest shareholder, and smaller advisory firm Egan Jones, had publicly backed the deal.