Advisory Firm Tells MetroPCS Shareholders Not To Vote For T-Mobile Deal

metropcs

Things are looking a little bleaker for the MetroPCS/T-Mobile merger as Institutional Shareholder Services Inc has come out in opposition of the merger. ISS, an investor-advisory firm helping companies manage large investments released a report suggesting MetroPCS shareholders can get a better deal from another company.

“The ultimate question for PCS holders, therefore, is whether this offer is sufficient compensation for putting control of their investment in the hands of another strategic, DT, under whose control T-Mobile has appeared to have so vastly underperformed,” I.S.S. wrote, referring to T-Mobile’s parent, Deutsche Telekom…”In light of the negative market response to this transaction (shares are down 14.4% since announcement), 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 its report on the deal.

Shareholders remain free to ignore the advising of ISS, but it boosts the position of Paulson & Co and P. Schoenfeld Asset Management, the deals two biggest opponents. Both shareholders have argued for better terms, finding a new merger partner or remaining an independent wireless carrier. ISS did acknowledge that MetroPCS will need more spectrum or its growth will slow. However, it continued to state that shareholders could find better opportunities down the road than T-Mobile. The ISS report concludes that shareholders deserve more than the 26% stake they will receive in New Co.

This news comes two days after T-Mobile’s still-newly mined CEO stated the MetroPCS deal would close “despite the several greedy hedge funds that are trying to take a double dip out of that process.”

With the deal receiving clearance from all necessary regulatory agencies, the shareholder vote is the last remaining hurdle to finalizing the transaction. On the flip side of ISS however, Egan-Jones Proxy Services issued its own statement supporting the merger stating “the combination would increase the size and quality of the carrier’s wireless coverage and help it respond to growing demand for faster mobile-data services.” Egan-Jones continued by saying the deal was good in principle, so long as the terms are right.

Whether or not the ISS report will say undecided voters is something we won’t know till April 12th and the shareholder vote. Until then, we’re sure to see both sides continue to fight for the their cause.

Bloomberg, Wall Street Journal

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  • http://about.me/daylondeon Deacon

    sometimes i wish these companies would just go bankrupt and out of business as the ultimate F U to these people who oppose some mergers .. it’s obvious this is in the best interest of both companies .. i wish i had the power to say okay shareholders and stupid advisory firm .. BOOM .. Metro PCS is bankrupt and out of business and everyone loses their jobs .. now what you stupid idiots???
    but i can’t do that .. just wish it would happen as the ultimate slap in the face and STFU to these people.

    • Chris Drudge

      “it’s obvious this is in the best interest of both companies”

      What’s in the best interest for both companies is not the underlying concern for an investor. The biggest concern for an investor is are they getting the most return on their investment. Sometimes this coincides with what’s best for either or both companies. Sometimes it’s counter to what’s best for them.

      • http://about.me/daylondeon Deacon

        then they should just say that instead of the doom and gloom .. just say hey we want more money lol .. which 9 times outta 10 is what it boils down to eh? :)

        • fentonr

          Yeah, its funny how some times its appropriate to come out and say that and some times not. As to your original point, I agree. I wouldn’t want Metro employees to lose their jobs, but I’d die of laughing at the investors who voted against the merger then got hosed when Metro went bankrupt.

        • archerian

          MetroPCS is a profitable company, they are not desperate to exit the business for fear of bankruptcy. How do you conclude they will go into bankruptcy?

        • fentonr

          Profitable today is not profitable tomorrow. Regardless, that’s not what we were discussing. I was saying that I think it would be funny to watch the investors take a bath IF the deal doesn’t go through and IF Metro then ended up going bankrupt down the road trying to compete on their own.

        • http://about.me/daylondeon Deacon

          yeah it’d be funny lol .. i’m not wishing job loss just saying for giggles … how these people protest something and then ultimately make it worse by protesting .. it would be the ultimate stfu to me .. just sayin that’s all. :)

  • Jonson

    Don’t stock prices generally fall after big news like this? I don’t see why ISS sees that as negative feedback. Apple’s stock generally drops after a big product launch.

    • fentonr

      It depends on the offer. As an offer is usually a Premium over the current price, usually it goes up to just under the offer price.

    • xmiro

      they do, or go up. The offers are usually based on stock price average for the prior 90 day period before news of merger get out + whatever premium above the average stock price has been determined

    • mdosu

      There’s no “general” to anything. Each deal structure is different and stock prices reflect post-merger valuations of both companies, and is dependent on what method of financing is used to buy the equity and how much premium is being paid.

    • Chris

      People need to understand that stocks != the money they are making. Stock Values are pretty much a measure of shareholder’s trust in the companies future assets. A good example is Google and Apple, Apple has a huge lead to Google in terms of “profit margin” but Apple’s stocks has been going down while google stayed well over $750+. It’s because there is more value in Google’s assets down the line (Self-driving car, Android, Project Glass, etc.)

      But in any case, telecommunication stocks are not the same as industry stocks where there’s a higher increase in stock value.

      The highest PCS stock can go with their current stature is probably $12/13 per share. They should really think about their future. Some of these “Advising firms” have spouted really bad advice in the last few months (only because with the global economy, you can’t really predict when stocks will drop). A few months ago, advising firms where suggesting fb stock is a buy. But since then they have switched to a “hold” then a “sell” within a short time frame.

      So as an investor you really even have to wonder, what will they say about T-mobile in a few months.

      • dpro

        Google is actually overvalued to the amount of product they actually have. Using the Apple and Google analogy is dumb. Apple has a huge product line that is still hitting sales marks. The investors are just selling down because the analysts are saying Apple has nothing new to bring to the table innovation wise. Its stock price is now being driven by pure speculation. Not based on month to month charts nor year to year charts the way a investor should be investing. if the investors were doing that they would not have sold it down as the charts show Apple is fine.

        The Self driving Car and Google glass are pie in the sky speculation in actual provable sales and in the profitability department. Both are quite controversial to the average consumers. People do not want driving taken completely out of there hands and people don’t want people being able to record shit anywhere. Obviously there are spy cams already but Google glass pretty much announces itself and would create violent reactions in a lot of people. Ya it sounds crazy but its true. Google does not make money off Android either. They get money from advertising hooks.

        So from an investors standpoint I would not touch Google at 700 or 750 and would more likely to invest in Apple at 450 as Apple is likely to have a rally come June and July.

        On the merger front indeed it might not be in the MetroPCS investors favor for it to happen. It is good for both companies even if the deal is lopsided towards DT.

        Perhaps the investors should try and renegotiate for a better deal for MetroPCS.

        Though I can say the deal not happened would make it harder for both in the long run. Oh and the real question is if the investors are so upset about it how come they were not piping up before now? This deal has been on the table for what 6 months now? Its not like the failed ATT T Mobile deal which had a broad opposition from the get go.

  • S. Ali

    Metro and T-mobile will both go bankrupt alone, together they have a shot at taking #3. That is what they are fighting for. Geez these investors are morons. Both companies a losing customers and Metro wants to go it alone?

    • mdosu

      No doubt both companies are better off with a merger, PCS has to merge with someone in the long term to compete, but why would they take a bad deal? It’s like you buying a car. You need a car to get to work, drive around the family, etc. The dealership needs to sell you a car to make money, both sides benefit from the transaction, will you buy this car if you had to go $1 million in debt? Well, it depends if you’re going to get $1 million worth of value from the car….it’s more complex than the idea of the merger itself.

      • S. Ali

        Absolutely I would carry that debt, its about long-term growth potential. Metro has no other offers and they are slowly becoming #6 smallest carrier. Sprint was the only other option and they backed out 6 months ago. ATT and Verizon could try, but the FCC probably wouldn’t approve. They could put in a bid just to screw with t-mobile and delay the process. In either case, shareholders lose money. Their 3rd option would be a merger with Leap Wireless (cricket).

        • mdosu

          It depends on your investment time horizon. At the end of the day, there’s limited options for PCS, and all this valuation recommendations is likely a process to get DT to sweeten the deal. On the PCS side, you certainly don’t just show your hands, you posture and tell the world how horrible the deal is.

  • kev2684

    what’s metro pcs gonna do without t-mo? with the new plans, 4G LTE, and top phones coming to t-mobile, with $30 more/month and you get a premium phone with faster speeds and more coverage. metro is losing customers to t-mo.. they will benefit a lot with the merger.

    • fentonr

      Companies like Metro will always be around for the cheap customer who never wants to spend a penny more, even for a superior product. However, I agree, the gap in services is getting wider and the gap in cost is getting smaller. Add this to the fact that T-Mobile can’t acquire spectrum without having to go through a failed merger, Metro is screwed if the merger doesn’t go through. AT&T and Verizon probably wouldn’t be allowed to purchase them and Sprint…just…is Sprint, they’ve got so much going on and so many problems it doesn’t seem like that would ever happen. Without T-Mobile, Metro won’t ever get above MAYBE 12-13m customers.

    • mdosu

      no doubt there’s benefit, but it’s about the debt burden PCS will take on the merger in this deal. PCS will at one point HAVE to merge with someone, but they’re taking a bad deal right now. It almost equates it to if you’re buying a car. You need a car to get to work, drive around the family, etc. The dealership needs to sell you a car to make money, both sides benefit from the transaction, will you buy this car if you had to go $1 million in debt? Well, it depends if you’re going to get $1 million worth of value from the car….it’s more complex than the idea of the merger itself.

      • fentonr

        So, where is this debt, I hear it thrown around, but I can’t find any references to it in actual financial reports.

        • mdosu

          Bloomberg link provided in article, $15 billion loan for 7% interest after 1.5 billion cash payment to existing shareholders.

        • fentonr

          Ahh, ok. I see now. That would have zero effect on T-Mobile’s valuation though. First, because it isn’t a current loan, and second, because when T-Mobile takes the loan, it will have a 15 billion liability, but 15 billion more in cash. True, there is interest, but that is incurred over time. Point is, it would have a zero sum effect.

    • kalel33

      Your explanation is the exact explanation for why people should choose T-mobile over Metro is the same reason why people should leave T-mobile to go with Verizon or AT&T. Better phones and vastly better coverage. T-mobile is losing customers to everyone. They haven’t had a positive net intake of customers since Q3 of 2010.

      • kev2684

        except t-mobile actually has enough cities covered and fast enough to actually compete with at&t over Metro vs. T-Mobile. T-Mobile only had 2 flagship phones last year and they’re both from samsung. T-Mobile was adele in 2012. they could have had it all. fast forward 2013, T-Mobile has it all. HTC One, Blackberry Z10, Apple iPhone 5/5S, Samsung Galaxy S4, Samsung Galaxy Note III. Metro has what?

        • kalel33

          City coverage is one thing but total coverage is another. There are times when driving home that I have absolutely no coverage and 2G most of way while roaming. I also love getting those messages from T-mobile that I’ve reached my roaming data limit. Major cities are fine with T-mobile but the rest is a crap shoot, with most of the time getting snake eyes. You stated the phones that T-mobile has and half of them haven’t even been released yet. The current phone line is lower than the other carriers but T-mobile “will” get better, but they are still missing the flagship phones from Nokia, Motorola, and Sony.

          Just like with Metro, if the coverage works for you then Metro is the better option, just like if the coverage works for you with T-mobile then it’s a better option than AT&T and Verizon.

      • kev2684

        except t-mobile actually has enough cities covered and fast enough to actually compete with at&t over Metro vs. T-Mobile. T-Mobile only had 2 flagship phones last year and they’re both from samsung. T-Mobile was adele in 2012. they could have had it all. fast forward 2013, T-Mobile has it all. HTC One, Blackberry Z10, Apple iPhone 5/5S, Samsung Galaxy S4, Samsung Galaxy Note III. Metro has what?

  • xmiro

    basically some stock holders want more money per share, bigger equity position in the new company – not the 26% they’ll get post-merger which would = more profit since T-Mobile is bigger and would bring more revenue to the table

    • archerian

      more revenue does not always equate to more profits, MetroPCS in itself is more profitable than T-mobile of late.

    • fentonr

      Seems pretty generous to me. ~13B for Metro? That’s more then I’d pay. Market cap is only <4B. Before anyone asks, here's how I got that number. 25% of MetroPCS value = ~1B + 1.5B cash stockholders are getting + 25% of T-Mobile's approximate value of 40B. So, 1+1.5+10, and then round because these are all rough estimates anyway = 13B.

      • archerian

        T-Mobile USA is currently worth about $25 billion including debt. Regardless of what stockholders are saying, T-Mobile will also bring around $15-$20 billion of debt into the deal. That is a red flag for many.

        • fentonr

          That makes sense, except I fail to see where that debt is coming from. T-Mobile doesn’t currently have that much debt according to any report I can find.

        • archerian

          check out the PDF documents in ‘Events and Presentations’ in the MetroPCS Inverstor Relations website. It states “Roll-over existing $15Bn DT
          intercompany loan into notes in NewCo” which means DT will bring a loan into the newly formed company via unsecured notes. This is just from DT, I dont know how much DT and MetroPCS have additional via capital leases etc.

        • kalel33

          They have a massive amount of debt because the Voicestream purchase was 35 billion dollars. They pay DT back for that and aren’t even close to paying it off.

  • John Legere

    Wow, April 12th will be a huge day for T-Mobile’s future!!! iPhone and MetroPCS vote!!! Come on and say yes b!tches!!!!

  • mdosu

    A merger is in the interest of DT and PCS, but reading the specifics of this, this is a BAD deal for PCS. They should go back to the drawing table and propose a new structure.

    • archerian

      MetroPCS is profitable, while T- mobile might time to get into a few consecutive quarters of profitability. Sprint should also become very competitive in a few years after their Softbank capital infusion and huge stockpile of spectrum. In light of all this, MetroPCS might get a higher price down the lane from either entity.

  • RedGeminiPA

    Investment firms only care about how much money they’re making, not what’s in the best interest of the company. Tell them to shove it.

  • James

    I really hope the merger goes through even if the gready shareholders vote against it! I also hope that they even get smaller equity of the new company since they didnt want the merger!

    • archerian

      greed is not just wanting more money for the same thing, but also wanting more of the same thing for a lesser price. So, it could be argued that DT might be greedy in some respects too, wanting the deal to go through at a cost structure that many MetroPCS shareholders see as less competitive. After all, they were willing to sell out to the same folks they are thrashing today a few months ago when they saw the $40B payout.

  • Randall Lind

    I would tell the 2 investment groups that are mad and hold 12% combine to buy MetroPCS then. If they are truly that upset, When they run out of spectrum then what?

  • Tony M

    Gordon Gekko: It’s not a question of enough, pal. It’s a zero sum game, somebody wins,
    somebody loses. Money itself isn’t lost or made, it’s simply
    transferred from one perception to another.

  • James

    Sounds like an act to get a better deal from T-Mobile. The ship is already sinking, but yea let’s see how much we can get for our ship full of holes.

  • Richard Yarrell

    Deal will be approved as planned April 12th. And 100% final May 1st. End of story.

  • http://twitter.com/Grantshotfirst Phil

    At this point MetroPCS is still growing and thus still has some control over it’s own destiny. T-Mobile is trying to buy them while it’s still cheap enough to justify a reverse buyout that won’t hinder either’s growth.

    This shareholder report says “we want more money today because we know you have it.” T-mobile at this point would be smart to get a vote, see where they stand and sweeten the pot after that. This is just a cash grab.

  • http://www.facebook.com/unfazedrebel Jé Be (Here but Gone)

    Smart advice advice