Deutsche Telekom sweetened the debt terms of an October proposal to merge its Bellevue-based T-Mobile USA unit with MetroPCS Communications, aiming to placate shareholders with what it called a “best and final offer.”
Under the new terms, Deutsche Telekom cut the amount of debt it’s imposing on the combined company by $3.8 billion, according to a statement. The Bonn-based company also lowered the interest rate it plans to charge on the loan by half a percentage point.
The transaction has faced opposition from investor-advisory firms and some of MetroPCS’ largest shareholders, who were concerned the new company would be loaded with too much debt. The fresh offer, which came less than two days before MetroPCS shareholders were scheduled to vote on the original terms, would cut the loans to $11.2 billion, from $15 billion.
“This puts the new company under less pressure and gives them more strategic flexibility,” said Jonathan Chaplin, an analyst with New Street Research in New York. With less of a debt burden, the new company can more easily afford to make network investments and acquire more wireless airwaves, he said.
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MetroPCS shares rose 3.3 percent in New York after news of an improved bid first surfaced. Deutsche Telekom climbed 2 percent on the Frankfurt exchange.
As part of the changes, Deutsche Telekom also extended the lockup period during which it’s barred from publicly selling shares in the combined company. The time frame will now be 18 months, up from six. That may reassure investors that the German company doesn’t plan to cut and run.
In response to the revamped offer, MetroPCS delayed its shareholder meeting, scheduled for Friday, until April 24. That will give investors time to evaluate the new proposal, the Richardson, Texas-based company said in a statement.
The merger would combine the fourth- and fifth-largest U.S. wireless carriers, creating a stronger competitor to market leaders Verizon Wireless and AT&T. Deutsche Telekom agreed in October to the original deal, which gives MetroPCS investors $1.5 billion of cash and a 26 percent stake in a new entity. That part of the transaction isn’t changing, Deutsche Telekom said in its statement.
“This improved offer underlines Deutsche Telekom’s commitment to establishing a new, stronger 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 company said. It reiterated a prediction that the merger will generate cost savings of $6 billion to $7 billion.
P. Schoenfeld Asset Management (PSAM), the MetroPCS investor that led the fight against the original deal, said in a statement that it welcomed the move and will review the proposal.
“PSAM is pleased that Deutsche Telekom — in response to strong opposition to the deal from shareholders — has taken steps to improve the terms,” the New York-based firm said.
Deutsche Telekom had previously sought to charge an interest rate of about 7 percent — an excessively high amount, PSAM had argued.
The sweetened offer should help seal the deal, New Street Research’s Chaplin said.
“I think this is enough,” he said. “They reduced the debt by enough to make this a better deal for MetroPCS shareholders than remaining independent.”
Support for the original deal faltered last month when Institutional Shareholder Services and Glass, Lewis & Co. — two influential investor-advisory firms — criticized the terms of the merger. Paulson & Co., MetroPCS’ largest owner, also opposed the offer, though No. 2 shareholder Madison Dearborn Partners was in favor of it.
By improving the terms, Deutsche Telekom is seeking to avoid a replay of T-Mobile’s failed deal in 2011, when AT&T walked away from a takeover after facing regulatory scrutiny. For Deutsche Telekom Chief Executive Officer Rene Obermann, the MetroPCS merger would be the largest acquisition since the German company entered the U.S. market more than a decade ago.
T-Mobile is struggling with contract-subscriber losses and has fallen behind rivals in embracing long-term evolution, or LTE, a faster network technology. To win back market share, T- Mobile CEO John Legere is touting its lower prices and a new installment-plan approach to buying phones.
T-Mobile will begin offering Apple ’s iPhone on Friday for the first time, becoming the last major U.S. carrier to get the device.
The combination of T-Mobile and MetroPCS would create a company with 42.3 million customers.
The deal moved a step closer to completion March 12, when both the Federal Communications Commission and the Justice Department approved the combination. The following week, the Committee on Foreign Investment in the U.S. approved the transaction.
Bloomberg News reporter
Scott Moritz in New York contributed to this report.