* Debt for T-Mobile USA/MetroPCS would be cut by $3.8 bln
* Deutsche also lowers interest rate on debt by 50 bps
* Lock-up period also extended
* New terms likely to sway many shareholders - analyst
By Sinead Carew and Harro Ten Wolde
NEW YORK/FRANKFURT, April 10 Deutsche Telekom
sweetened its terms on Wednesday for the proposed
merger between T-Mobile USA and MetroPCS Communications
by reducing the combined company's debt, bowing to pressure from
activists and proxy advisory firms.
Shares of MetroPCS rose 2 percent in late trade after
Deutsche Telekom, the parent of T-Mobile USA, said it would
reduce the debt burden for the combined company by $3.8 billion
and lower the interest rate on the debt by 50 basis points.
The new terms increase the odds of success for a deal that
is aimed at giving T-Mobile USA, the No. 4 U.S. mobile provider,
badly needed spectrum to build a network capable of handling the
vast data volumes that U.S. consumers and businesses use on
Without combining the spectrum, the companies will find it
hard to compete with bigger rivals such as Verizon Wireless
, AT&T Inc and Sprint Nextel.
"I think the revised offer is enough to win majority
approval," said Kevin Roe, an analyst with Roe Equity Research.
"Will it satisify all of the activists? I don't know but
it's likely to sway enough votes."
The reduction in debt to $11.2 billion from a proposed $15
billion, excluding the interest-rate change, improves the deal's
valuation by about $2.67 a share for MetroPCS shareholders.
Deutsche Telekom has not provided a total per-share
valuation for the deal because T-Mobile USA is not public.
As part of the sweetened offer, Deutsche Telekom also
expanded the lock-up period - when it is prohibited from
publicly selling shares in the company - by 12 months to 18
months after the deal closes.
The German operator did not change the equity structure of
the new company, which will be 74 percent owned by Deutsche
Telekom and 26 percent owned by MetroPCS shareholders.
MetroPCS said late Wednesday that it has rescheduled a
special meeting of MetroPCS shareholders to April 24 to vote on
matters relating to the proposed merger.
LISTENING TO SHAREHOLDERS
The revision came after two key shareholders said they would
vote against the deal due to debt and valuations concerns, and
after U.S. proxy advisory firms Institutional Shareholder
Services and Glass Lewis had also recommended shareholders vote
against the deal.
P. Schoenfeld Asset Management LP, which says it owns about
2.5 percent of MetroPCS and is leading the proxy battle against
the deal, said in a statement that it was pleased that the
terms had been changed.
"We are reviewing and considering the details of Deutsche
Telekom's revised offer with our advisors at this time and will
provide MetroPCS shareholders our view regarding the new terms
in short order," it said.
Paulson & Co, which has a 9.9 percent stake and had said it
would vote against the deal, did not have any immediate comment.
After the proxy firms warned shareholders against the deal,
analysts and investors had said shareholders would likely vote
against the deal unless the company changed the terms.
Even Deutsche Telekom shareholders told Reuters on Wednesday
that they would want the company to give MetroPCS a better offer
rather than face the failure of the proposed deal.
Deutsche Telekom has been struggling since 2011 to find a
better path for T-Mobile USA after having to abandon a sale of
the company to AT&T for $39 billion because of opposition from
Westchester Capital Management, whose funds own about 4
percent of MetroPCS shares, filed a lawsuit in federal court
last week seeking to halt the planned shareholder vote because
it contended that the company did not properly explain the deal.
Only Madison Dearborn, an owner of about 8.3 percent of
MetroPCS shares, and smaller proxy advisory firm Egan Jones had
publicly announced support for a vote in favor of the deal.
WEIGHING IMPACT OF LESS DEBT
Robin Bienenstock, an analyst at Sanford C. Bernstein in
London, has calculated that every reduction of loans by $500
million would cost Deutsche Telekom 0.034 of a euro per share,
while reducing the interest on the loan would result in a hit of
about 0.01 of a euro for every 25 basis points.
Based on Bienenstock's calculation, the sweetened deal would
reduce the price of Deutsche Telekom shares by about 0.29 of a
euro. Deutsche Telekom shares closed on Wednesday at 8.61 euros,
up 2 percent.
MetroPCS shares rose more than 2 percent to $11.84 in
extended-hours trading after closing at $11.56, up 3.3 percent
in the regular New York Stock Exchange session.