* Deutsche Tel sweetens T-Mobile USA deal for MetroPCS
* Leading rebel MetroPCS shareholders drop their opposition
* DTel may target more US deals to reduce exposure - sources
* Analysts see shareholders approving the new structure
By Harro Ten Wolde and Nadia Damouni
FRANKFURT/NEW YORK, April 11 Sweetening the
terms of a U.S. merger not only improves Deutsche Telekom's
chances of getting a deal done, but may also pave the way for
what some investors and bankers think it really wants - to
reduce its exposure to a highly competitive market.
The German group's T-Mobile USA unit lacks the critical mass
to take on bigger U.S. rivals Verizon, AT&T and
Sprint and has been losing market share.
Having struck a deal to merge T-Mobile USA with smaller U.S.
rival MetroPCS, Deutsche Telekom on Wednesday bowed to
pressure from some MetroPCS shareholders to improve the terms of
the tie-up in the hope of winning their support.
However, some analysts think the combined firm will still be
too small, and two sources familiar with Deutsche Telekom's
thinking told Reuters on Wednesday the deal could be a prelude
to the sale of a controlling position in its U.S. business.
"MetroPCS is not a game changer for T-Mobile, although it
should have it to make it more attractive," said one of the
"Deutsche Telekom is willing to give up control of T-Mobile.
T-Mobile is in play."
Deutsche Telekom, which will own 74 percent of
the merged U.S. company, declined to comment.
The German group has been battling for years to find a way
of making T-Mobile USA stronger. In 2011, antitrust regulators
blocked a $39 billion bid from AT&T for T-Mobile USA, and
Deutsche Telekom has twice held talks with Sprint in the past.
Analysts said the new terms of the deal with MetroPCS, which
include reducing the debt of the combined group, would improve
Deutsche Telekom's chances of winning support from MetroPCS
shareholders in a vote on April 24.
Leading dissident shareholders Paulson & Co and P.
Schoenfeld Asset Management LP (PSAM) both said on Thursday they
were dropping their opposition to the tie up, meaning the fight
is likely over.
"The improved terms for MetroPCS shareholders mean that the
probability is high enough now that the deal will go through,"
said John Krause, a research analyst for Thrivent Asset
Management, which owns roughly 0.27 percent of MetroPCS shares.
Krause declined to say which way his firm will vote but was
positive about the new terms from Deutsche Telekom: "More value
is being given to the MetroPCS shareholders and the combined
entity is less risky because of the capital structure."
Analysts also said a less indebted combined firm would make
it a more attractive takeover target in a U.S. market ripe for
more consolidation. Since the merged firm will be publicly
listed, it could be easier for Deutsche Telekom to eventually
reduce its stake.
"A less indebted MetroPCS will be better equipped to compete
in the U.S. market," said analyst Robin Bienenstock of Sanford
C. Bernstein. "More importantly, this combination will give
Deutsche Telekom a better 'currency' for future consolidation in
the U.S. market, that we still think probable," she added.
However, Deutsche Telekom will not be able to reduce its
stake quickly, as under the revised deal terms with MetroPCS, it
has lengthened the period that it cannot sell its shares in the
new company from six to 18 months.
THE NEXT MOVE?
By tying up with MetroPCS, Deutsche Telekom hopes to provide
T-Mobile USA with the spectrum to build a network capable of
handling the vast data volumes that U.S. consumers and
businesses use on smartphones and tablets.
Some Deutsche Telekom shareholders, however, worry that even
a successful MetroPCS deal might not be enough for T-Mobile USA
to catch up with rivals.
T-Mobile USA lost 515,000 contract customers in the fourth
quarter of 2012, although it recently announced first-quarter
data early showing smaller losses of 199,000 contract customers.
T-Mobile USA recently overhauled its tariffs to eliminate
most phone subsidies and started selling Apple's iPhone after
years without it. But its network quality lags Verizon and AT&T
which have invested massively in fourth-generation mobile
technology in recent years.
"T-Mobile USA is squeezed at the bottom end by cheap plans
and squeezed at the top end because others have invested a whole
lot more money and have got a better offer in terms of network
cover and quality of handsets," said a top 50 Deutsche Telekom
shareholder on condition of anonymity.
"By trying to sell T-Mobile USA [to AT&T], Deutsche Telekom
told us what they really thought."
Analysts and investors said possible suitors in the coming
years for a combined T-Mobile USA-MetroPCS could be third-place
Sprint, which is now backed by Japan's Softbank, or
U.S. satellite service provider DISH Network Corp,
which owns $3 billion in mobile spectrum but has no network.
Backed by billionaire Chairman Charlie Ergen, DISH wants to
diversify beyond its core pay-TV business, which has matured and
faces tough competition from cable, telecom and the Internet.
Stoking deal speculation, DISH recently raised $2.3 billion
in debt and Macquarie analysts estimate it will have more than
$10 billion cash by the end of the second quarter.
"The only deal available to DISH as an operator is
T-Mobile," said one of the sources familiar with Deutsche
Telekom's thinking. "They want a network they can use to offer
customers fixed and mobile deals."
The source added that neither Softbank nor DISH were likely
to want a deal that would not give them absolute control.
Softbank and Sprint spokespeople were not immediately
available for comment. DISH declined to comment.
MetroPCS shares closed down 25 cents, or more than 2
percent, on Thursday, but the stock had already risen more than
21 percent since early January as investors were betting on a