By Sinead Carew
NEW YORK, March 29 Proxy advisor Glass Lewis on
Friday became the second firm to suggest that MetroPCS
Communications Inc shareholders vote against a proposed
merger with T-Mobile USA, adding pressure on Deutsche Telekom AG
to sweeten the deal.
The move by No. 2 proxy firm Glass Lewis backs efforts by
two key activist investors to block the deal, the day after
leading proxy firm ISS said shareholders should vote against the
deal with T-Mobile USA, the U.S. business of Deutsche Telekom.
If the deal collapses, it would be a huge blow for Deutsche
Telekom after being forced in 2011 to abandon its plan to sell
T-Mobile USA to AT&T for $39 billion amid regulator opposition.
The failure of that 2011 plan cost T-Mobile USA some
customers as the company focused away from its core business.
T-Mobile USA - the No. 4 mobile provider in the United
States - and its smaller rival 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.
But Glass Lewis said the current deal undervalues MetroPCS's
contribution to the combined company. Staying independent would
help MetroPCS shareholders reap more value in the short term,
the proxy firm said in a report.
A 'no' vote by MetroPCS shareholders could also prompt a
better offer, Glass Lewis said.
According to analysts, the negative reviews from proxy firms
could likely force Deutsche Telekom to change the deal terms.
That could mean reducing the proposed debt load of the combined
company and corporate governance changes.
The proposed debt load of $21 billion is the biggest gripe
MetroPCS shareholders have with the deal, according to analysts
Jonathan Chaplin, an analyst with New Street Research, said
shareholders would likely push for less onerous terms on the
debt and for governance changes as well as lower debt levels,
before they would vote for the deal.
But shareholders could look for governance changes as well.
A MetroPCS spokesperson said in an emailed statement that
the board remains committed to the deal and thinks it is in the
best interest of stockholders.
MetroPCS declined to say if the recommendations would lead
to any changes to the deal. Representatives for Deutsche Telekom
did not respond to requests for comment on the Glass Lewis
Paulson & Co, the biggest MetroPCS shareholder, and P.
Schoenfeld Asset Management, another big shareholder, had both
committed to vote against the deal on concerns about the
valuation and the amount of debt being assigned to the combined
Even so, another major shareholder - Madison Dearborn - had
thrown its weight behind the deal. A smaller advisory firm, Egan
Jones, had also recommended its clients vote in favor of the
Under the terms of the reverse-merger announced in October,
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.
On top of these issues, the companies are soon expected to
face tougher competition from an emboldened Sprint, which has
agreed to sell 70 percent of its shares to Japan's SoftBank Corp
for $20 billion.
P. Schoenfeld Asset Management LP, which says it owns about
2.5 percent of MetroPCS, is leading a proxy battle against the
deal. Paulson & Co has a 9.9 percent stake, and Madison Dearborn
owns about 8.3 percent of MetroPCS shares, according to the most
recent public disclosures.
MetroPCS shares have slid more than 8 percent since Oct. 1,
2012, the day before reports emerged that MetroPCS and Deutsche
Telekom were in talks.