* Deutsche Telekom has deal to merge T-Mobile with MetroPCS
* Investors owning about 12 pct of MetroPCS oppose deal
* MetroPCS shareholders to vote on deal on April 12
* DT, MetroPCS, T-Mobile execs meeting investors this week
* Deal key to DT bulking up in US, freeing up resources
By Harro Ten Wolde and Leila Abboud
FRANKFURT/PARIS, March 25 Deutsche Telekom is on a final charm offensive to win over MetroPCS shareholders to a merger with its U.S. business, which it needs to close the gap with bigger U.S. rivals and free up resources to invest in Germany.
While MetroPCS agreed the deal in October, activist shareholders holding about 12 percent of its stock contest the terms and are campaigning for others to help vote it down.
Failure for Deutsche Telekom, which has already had an attempt to sell its T-Mobile US arm to AT&T knocked back by competition regulators, could have big repercussions.
At the least, the German group could have to sweeten its proposal for MetroPCS. At worst it could be left a distant fourth in the U.S. mobile market, pumping in money it needs in Germany to reverse losses in broadband customers to cable firms.
"There are no other options left other than trying it on their own in the U.S. They will be set back two years in time (if the deal fails)," said a Deutsche Telekom shareholder who met with the Bonn-based company last week.
Having won regulatory approval, the MetroPCS merger now needs support from a majority of the U.S. firm's shareholders in a vote on April 12. In a bid to secure this, Deutsche Telekom, MetroPCS and T-Mobile US executives began meetings with MetroPCS investors on Wednesday that continue this week.
But they face opposition led by investment firm P. Schoenfeld Asset Management, which has called the deal "irresponsibly and inefficiently structured," arguing the terms undervalue MetroPCS and saddle it with debt at high rates.
Critical to the outcome could be shareholder advisory firm ISS, which Deutsche Telekom met last Thursday and which may publish its recommendation on how MetroPCS investors should vote as early as Tuesday or Wednesday. Advisory firm Glass Lewis will also weigh in later this week.
"If the ISS recommends shareholders vote against the deal in its current form, it will put a lot of pressure on Deutsche Telekom to revise the terms," wrote Nick Brown, analyst at Espirito Santo investment bank in a research note.
The Deutsche Telekom shareholder, who spoke anonymously because his discussions with the company were private, said the German group was "pretty convinced" it would get enough votes but was checking with big MetroPCS shareholders to be sure.
"It all depends on the feedback they will get in the coming days, whether they will consider a deal with better terms."
Deutsche Telekom has long searched for a solution to help T-Mobile US compete with bigger rivals Verizon, AT&T and Sprint. In 2011, antitrust regulators blocked a bid from AT&T to buy T-Mobile US. That $39 billion deal would have left Deutsche Telekom holding 8 percent of the larger company.
Deutsche Telekom talked to other operators including Sprint in a bid to gain critical mass in the United States - which is nearly 70 percent controlled by the top two players - and settled on MetroPCS.
Under the October deal, MetroPCS shareholders will get $4.06 per share in cash plus stock equivalent to 26 percent of the combined company. Deutsche Telekom will own the rest.
The new company will have almost $19 billion in net debt, including a $15 billion loan from Deutsche Telekom, which rebel MetroPCS shareholders say is unfairly priced.
MetroPCS says the loan's interest rate will be about 7 percent but activist Schoenfeld, which owns 2.5 percent of the company, puts it at 7.72 percent, and says the loan is effectively a transfer of value to Deutsche Telekom.
MetroPCS' largest shareholder Paulson & Co, which owns 36.3 million shares or 9.9 percent, has come out against the deal.
On Monday, MetroPCS wrote to shareholders urging them to vote in favour, arguing the deal would boost growth and insisting the debt was well-priced for MetroPCS.
A Deutsche Telekom spokesman declined to comment on whether the group would consider improving its offer and reiterated the current proposal was the best for shareholders of both firms.
If Deutsche Telekom fears the deal is at risk, it could alter the loan terms or accept a smaller proportion of the new company's shares. It could also extend the 6-month lockup period for it to keep shares in the combined company.
Without MetroPCS, which focuses on the pre-paid segment, T-Mobile US may need a revamped strategy. A tie-up with another rival such as Sprint is seen by bankers and investors as unlikely for now given that Japan's Softbank is buying a 70 percent stake in the third-place mobile player.
T-Mobile US lost 515,000 contract customers in the fourth quarter although total customers rose by 61,000. It holds an event in New York on Tuesday at which it is expected to announce new value plans and potentially the launch of Apple's iPhone.
A collapse of the MetroPCS deal would also have consequences for Deutsche Telekom in Europe, if it then needs to plough money into the United States to operate T-Mobile US on its own.
Deutsche Telekom has long said its priorities are Germany and the United States. It plans to invest almost 30 billion euros ($39 billion) over three years on upgrading its broadband in Germany and on faster mobile technology in the United States.
Adrian Pehl, analyst at German broker Equinet, said Deutsche Telekom might have to consider asset sales in Europe if the MetroPCS deal fell through, such its 50 percent stake in EE, Britain's largest mobile operator, or its Dutch mobile unit.
Deutsche Telekom and France Telecom, its partner in EE, have said that listing part of British operator this year was their preferred option. Analysts value DT's stake in EE at 5.76 billion euros, and the Dutch unit at 2.57 billion.
Moody's credit analyst Carlos Winzer said Deutsche Telekom would have options to step up investment in its U.S. business without MetroPCS. "If it fell through completely it would be (credit) neutral for DT. For other scenarios we would need to see terms," he said.