MetroPCS Communications Inc urged shareholders to support its proposed merger with Deutsche Telekom AG's unit T-Mobile USA after two proxy advisory firms recommended that shareholders vote against it.
Proxy advisers Glass Lewis and ISS have backed efforts by two key activist investors to block the deal by recommending that shareholders vote against it at a special meeting on April 12.
MetroPCS said in a letter to shareholders on Monday there could be no assurance it would be able to deliver better shareholder value as a stand-alone wireless company.
But the company's shares closed up 1 percent on Monday as at least some investors bet that the advisory firm's recommendations could lead to a better deal.
Glass Lewis said late Thursday that the deal undervalued MetroPCS's contribution to the combined company. ISS said MetroPCS could thrive as a stand-alone company.
Madison Dearborn Partners, the second-largest shareholder, has thrown its weight behind the deal.
But Paulson & Co, the biggest MetroPCS shareholder, has said it would vote against the deal and P. Schoenfeld Asset Management, an owner of about 2.5 percent of MetroPCS shares, is leading a proxy battle against the transaction.
Another set of funds run by Westchester Capital Management, filed a lawsuit in U.S. federal court Thursday seeking an injunction to halt the planned shareholder vote. Westchester funds own over 3 percent of MetroPCS shares.
Roy Behren, a portfolio manager at the firm, said that Deutsche Telekom would need to adjust the terms of its offer, including the proposed $21 billion debt level of the combined company, to win over shareholders.
"They would need to adjust the equity participation split. We would prefer less debt and we certainly would want a lower rate for the inter-company debt," Behren said.
"If the terms were to be modified, Deutsche Telekom would be able to get a lot of the larger shareholders back on board," he added.
Under the terms of the reverse merger announced in October, Deutsche Telekom would end up with 74 percent of the combined company, and MetroPCS would declare a 1-for-2 reverse stock split and pay $1.5 billion in cash to its shareholders.
T-Mobile USA, the No. 4 mobile provider in the United States, and MetroPCS want to pool their spectrum resources and networks in order to better compete with larger rivals Verizon Wireless, AT&T Inc and Sprint Nextel Corp.
If the MetroPCS 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 because of opposition from U.S. regulators.
MetroPCS shares closed up 15 cents or more than 1 percent at $11.05 on the New York Stock Exchange on Monday.
(Reporting by Sayantani Ghosh in Bangalore, Sinead Carew in New York; Editing by Maju Samuel, Saumyadeb Chakrabarty and Leslie Gevirtz)