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MetroPCS Communications Inc. has received another bid offer from T-Mobile USA, subsidiary of Deutsche Telekom AG to woo shareholders who stood against the proposed merger. Last week, T-Mobile, in its final offer to MetroPCS, reduced the combined company’s debt burden by $3.8 billion to $11.2 billion. The latest amendments in the deal terms were appreciated by most of the shareholders of MetroPCS and added optimism on the closure, expected by mid 2013.  

Despite receiving all the regulatory approvals, MetroPCS and T-Mobile deal remained surrounded by uncertainties given constant pressure by shareholders on modifying deal terms. Some of the major shareholders like P. Schoenfeld Asset Management LP and Paulson & Co strongly condemned the merger agreement citing unfair valuation to MetroPCS’ shareholders alongside a high debt level imposed on the combined entity that would ultimately hurt the viability of the merger. 

However, MetroPCS’ board of directors tried to nullify these arguments stating the deal offers shareholders a 70% to 90% premium. In addition, the proposed merger is expected to generate positive synergies for both the companies in terms of financial growth with estimated five-year CAGR for revenues, EBITDA and free cash flow in the range of 3–5%, 7–10% and 15–20%, respectively.

Further, the deal will also add to spectrum capacity and result in higher penetration of LTE networks that support speeds up to 20x20 MHz of 4G LTE in several regions. T-Mobile will be able to benefit from MetroPCS’ superior market position in no contract wireless services, while MetroPCS will gain from T-Mobile’s advance B2B services and Mobile virtual network operator (MVNO) platform.

However, we believe the emergence of new terms of lowering debt leverage signifies the effort of T-Mobile and MetroPCS to meet halfway in order to accomplish the proposed deal. Hopefully, the new terms would help the two companies establish an encouraging framework on agreement that would set positive grounds when the deal appears for shareholder’s approval on Apr 24.

Apart from financial benefits, the merger between MetroPCS and T-Mobile will boost their operation capabilities in the U.S. and will also offer strong resistance against big industry players like AT&T, Inc. (T - Analyst Report), Verizon Communications Inc. (VZ - Analyst Report) and Sprint Nextel Corp. (S - Analyst Report).

Currently, MetroPCS and T-Mobile have over 9 million and 33 million subscribers, respectively. This will form a subscriber base of more than 40 million for the combined company.

MetroPCS has a Zacks Rank #3 (Hold).

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