Feb 7 An investment adviser to shareholders holding about 7.5 million shares of MetroPCS Communications Inc said it intends to vote against the company's proposed merger with T-Mobile USA due to the deal valuation and debt levels that come with it.
P. Schoenfeld Asset Management LP (PSAM), whose holdings represented about 2 percent of MetroPCS shares on Oct. 19, said it sent a letter to the boards of MetroPCS and T-Mobile USA's parent Deutsche Telekom AG, on Jan. 30 complaining about the deal.
MetroPCS responded by saying that it still recommends the T-Mobile USA deal but that it would "carefully review and consider" the perspective of P. Schoenfeld Asset Management.
The investment firm said the deal did not offer a high enough valuation for MetroPCS shareholders and would load down the company with debt levels it believes are "unsustainable" for the size of the company and its credit rating.
As a result, Peter Schoenfeld, chief executive of the investment firm said, "it would be better for PCS to remain a stand-alone company" and look at opportunities for alternative transactions.
MetroPCS agreed to merge with T-Mobile USA in October, in a reverse merger deal that would leave Deutsche Telekom with a 74 percent stake in the combined company. As part of the deal MetroPCS will declare a 1-for-2 reverse stock split and pay $1.5 billion in cash to its shareholders.
Schoenfeld suggested in the letter that MetroPCS shareholders should get 37 percent of the combined company up from the current agreed ratio of 26 percent.
He suggested that the current deal would only make sense if the debt level on T-Mobile USA, and by extension the combined company, was reduced by $3.5 billion to $4 billion through elimination of intercompany debt.
Under the current terms the combined company would have $23.3 billion in total debt and leases, according to Schoenfeld.
The executive said the current deal offers no premium for MetroPCS stock and complained about the current share price.
"Based on the trading level of PCS stock, it appears that other investors share our opinion," Schoenfeld said adding that this was substantially lower than share prices reached in 2011.
But MetroPCS said the deal is in the best interests of shareholders and noted that it was "the result of a thorough process that began over two years ago and included the board and a special committee of the board considering a number of potential transactions with different strategic partners."
The stock closed at $11.52 on Oct. 1 the day before it emerged that MetroPCS was in talks with T-Mobile USA. But after the deal was announced the shares then fell. The stock was up 2 cents or 0.2 percent at $9.72 on Thursday afternoon on the New York Stock Exchange.