* ISS advice to vote no may sway Index funds-analyst
* DT could be forced to change debt terms - analyst
* MetroPCS shares closed at $10.53 on New York Stock
NEW YORK, March 28 Deutsche Telekom AG
will likely be forced to sweeten the terms of its
deal with MetroPCS Communications Inc after a proxy
advisory firm recommended that shareholders vote against the
proposed transaction, according to analysts.
Corporate governance consultants ISS said late on Wednesday
that it was backing the efforts of two big MetroPCS shareholders
to block the company's proposed merger with T-Mobile USA, the
U.S. arm of Deutsche Telekom.
Paulson & Co, the biggest MetroPCS shareholder, and another
big holder P. Schoenfeld Asset Management had both committed to
vote against the deal on concerns about the valuation and the
amount of debt being assigned to the combined company.
Even so, another big shareholder Madison Dearborn had put
its support behind the deal.
Analysts saw a negative recommendation from ISS as a blow
against DT's current offer which shareholders are set to vote on
at a special meeting April 12.
"In our view, this is a very significant development as
index funds tend to follow ISS's lead," said Jennifer Fritzsche,
an analyst at Wells Fargo.
Another analyst Jonathan Chaplin of New Street Research said
that in light of the ISS recommendation, shareholders would
likely look for lower debt, less onerous terms on the debt and
governance changes before they would vote for the deal now.
"We believe the transaction has strong strategic and
financial merits; however, we have argued that the terms need to
be amended to lower the debt on the pro forma company," Chaplin
T-Mobile USA, the No. 4 U.S. mobile provider, and its
smaller rival MetroPCS want to pool their spectrum resources and
networks in order to compete better with bigger rivals such as
Verizon Wireless, AT&T Inc, Sprint Nextel.
Under the terms of the reverse-merger announced in October,
Deutsche Telekom would end up with a 74 percent stake in the
combined company, and MetroPCS would declare a 1-for-2 reverse
stock split and pay $1.5 billion in cash to its shareholders.
If the deal collapses it would be a huge blow for Deutsche
Telekom, since in 2011 it had to abandon its plan to sell
T-Mobile USA to AT&T for $39 billion due to opposition by
In the roughly nine months it took for that deal to
collapse, T-Mobile USA lost many customers, it having been
distracted from its core business.
On top of these issues the companies are expected to soon
face tougher competition from an emboldened Sprint, which has
agreed to sell 70 percent of its shares to Japan's SoftBank Corp
for $20 billion.
P. Schoenfeld Asset Management LP, which says it owns about
2.5 percent of MetroPCS, is leading a proxy battle against the
Paulson & Co has a 9.9 percent stake and Madison Dearborn
owns about 8.3 percent of MetroPCS shares, according to the most
recent public disclosures.
MetroPCS shares have slid more than 8 percent since Oct. 1,
the day before reports emerged that MetroPCS and Deutsche
Telekom were in talks. They closed at $10.53 on Wednesday, prior
to the release of the ISS statement.