Deutsche Telekom’s T-Mobile USA and MetroPCS, the US prepaid operator, have confirmed plans to merge and create a new standalone US operator in which Deutsche Telekom will have a majority 74 percent stake.
Under the terms of the complex transaction, MetroPCS will conduct a 1-for-2 reverse stock split and pay out US$1.5 billion in cash to its existing shareholders, or about US$4.09 a share. It will then issue new stock worth about 74 percent to T-Mobile’s parent, Deutsche Telekom, leaving existing MetroPCS investors with a 26 percent stake.
T-Mobile USA and MetroPCS are the country’s fourth and fifth largest operators on 33.2 million and 9.3 million connections, respectively. According to analysis by Bernstein Research, the combined entity will have a 12 percent overall US market share – and control 29.5 percent of the prepaid market.
Its 42.5 million connections base will also bring it closer to third-placed operator Sprint (54.4 million), whose share price is now suffering as analysts believe Sprint is lacking its own M&A options as a result of today’s announcement.
Deutsche Telekom has been looking to strengthen its US unit for some time in an attempt to keep pace with larger rivals. A US$39 billion merger with AT&T was called off last year following regulatory objections.
A joint statement from T-Mobile/MetroPCS today noted that the combined company will retain the T-Mobile name and “will have the expanded scale, spectrum and financial resources to aggressively compete with the other national US wireless carriers” (Verizon Wireless and AT&T are the number one and two operators in the market, respectively). The joint statement made specific reference to T-Mobile’s traditional “challenger strategy,” with the new venture aiming to create “the leading value carrier in the US wireless marketplace.”
Upon regulatory approval of the deal (closure is expected in the first half of 2013), Mr. Legere, currently President and Chief Executive Officer of T-Mobile, will serve as President and CEO of the new company and J. Braxton Carter, currently Chief Financial Officer and Vice Chairman of MetroPCS, will be the CFO. The company will operate T-Mobile and MetroPCS as separate customer units, led by Jim Alling, currently Chief Operating Officer of T-Mobile, and Thomas Keys, currently President and Chief Operating Officer of MetroPCS, respectively. After closing, the company’s headquarters will be in Bellevue, Washington and it will retain a “significant presence” in Dallas, Texas.
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