* ISS says deal undervalues MetroPCS
* ISS also notes negative response by market to the deal
* Second biggest MetroPCS investor is in favor of the deal
By Sinead Carew
NEW YORK, March 27 Influential proxy advisory
firm ISS threw its weight behind opponents of MetroPCS
Communications Inc's proposed merger with T-Mobile USA,
saying the deal undervalued the company and shareholders should
vote against it.
MetroPCS agreed to the merger with the Deutsche Telekom
unit in October but activist shareholders holding
about 12 percent of its stock contest the terms and are
campaigning for others to help vote it down.
The deal cannot close without approval from MetroPCS
shareholders but in its favour, the company's second biggest
investor Madison Dearborn, which holds about 8.3 percent, has
said from the start it supports the merger. U.S. regulators have
also given their blessing.
ISS's advice came after T-Mobile USA Chief Executive John
Legere said on Tuesday he expects shareholders to approve the
The wireless carriers argue a merger is necessary to compete
with much larger rivals Verizon Wireless, AT&T Inc
and Sprint Nextel Corp.
"Because of the negative market response to this
transaction..., the lower equity split than justified by the
contribution of PCS to the combined entity, and the potential
for PCS to continue to thrive as a stand-alone company,
shareholders should vote against this transaction," ISS said in
a statement provided to Reuters late on Wednesday.
Activist investor P. Schoenfeld Asset Management LP, which
says it owns about 2.5 percent of MetroPCS, is leading a proxy
battle against the deal, which shareholders will vote on at a
special meeting on April 12.
The company's biggest investor, Paulson & Co with a 9.9
percent stake, has also said it would vote against it. Both
shareholders have complained about the deal's valuation and the
level of debt that would be assigned to the new company.
Under the terms of the deal, 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.
MetroPCS shares have slid some 14 percent since the merger
was first announced. They closed down at $10.53 prior to the
release of the ISS statement.