Deutsche Telekom Bends to Pressure from MetroPCS Shareholders

T-Mobile's parent company, pressured by MetroPCS shareholders scheduled to vote April 12, has offered a "best and final offer."

Deutsche Telekom has made a concession to MetroPCS shareholders, ahead of their April 12 vote on whether to agree on a merger with Deutsche Telekom's T-Mobile USA brand.

The shareholders are now all that stands in the way of a finalized deal. The merger between what is currently the nation's fourth- and fifth-largest carriers has already received the approval of the Federal Communications Commission (FCC), the Department of Justice and the Committee on Foreign Investment.

MetroPCS' largest shareholders, however, have voiced their disapproval of the deal. John Paulson, head of hedge fund Paulson and Co., has said that while the deal has its merits, its terms disproportionately benefit Deutsche Telekom.

In a Feb. 28 letter to members of MetroPCS' board of directors and the Deutsche Telekom supervisory board, Paulson expressed his displeasure that the deal would give the larger carrier a 74 percent share of the new company, to MetroPCS' 26 percent share, despite the latter's "contributing 42 percent to the pro forma company's value."

Paulson asked that the proposed interest rate be lowered from 7 percent to 4.2 percent and that the new company's debt be reduced from $15 billion to $6.6 billion.

In an April 11 statement, Deutsche Telekom said it was submitting its "best and final" offer—a lowering of the interest rate by 50 basis points and a lowering of the debt to $11.2 billion.

It also extended the "lock-up period," during which Deutsche Telekom would be prohibited from publically selling shares of the new company, from six months to 18 months, following the close of the deal.

"This improved offer underlines Deutsche Telekom's commitment to establishing a new, strong competitor in the U.S. mobile communications market that will offer customers a greater selection of attractively priced products and services on a best-in-class wireless network," the German carrier said in its statement.

It added that the new company will be able to compete more aggressively than the two companies had separately and that the new company is expected to "generate cost synergies of approximately [$6 billion to $7 billion]."

Paulson wasn't alone in objecting to the deal's terms. Hedge fund P. Schoenfeld Asset Management filed a proxy statement with the U.S. Securities and Exchange Commission, urging stockholders to vote against it, and Merger Fund and GS Master Trust filed a suit against MetroPCS executives, accusing them of "acting recklessly" and in "disregard to their duties."

More than changing the terms of the deal on a gut fear that as-is it might not pass, Deutsche Telekom likely did it on good knowledge.

Bloomberg reported April 10 that MetroPCS shareholders were sending in their proxy votes in advance of the April 12 deadline, and the party in charge of counting the votes is Deutsche Telekom.

"Deutsche Telekom can monitor the results in real time, giving it an early warning if the measure is going to fail," said the report. "The German carrier is considering an option to delay the final tally if victory appears unattainable, providing a chance to improve its bid, people familiar with the matter said."

Roy Behren, who manages shareholder Merger Fund, told Bloomberg, "I don't know if I'd call it a game of chicken, but as often happens with a proxy fight, you see people wait until the last minute."

T-Mobile CEO John Legere, speaking at a T-Mobile event March 26, told reporters that the deal would definitely be approved, "despite greedy hedge funds trying to take a double dip."

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