Blocked Merger: Another Opportunity for Sprint Nextel Corporation (S) and DISH Network Corp. (DISH)?

Page 1 of 2

As some stakeholders continue to show their dissatisfaction with the T-Mobile USA, Inc. and MetroPCS Communications In(NYSE:PCS) merger, the latter pushed forward the date for the shareholders’ vote. The date for the special meeting has been rescheduled from March 28 to April 12, where shareholders would discuss matter concerned to the proposed merger.

Sprint Nextel Corporation (NYSE:S)The largest investor of MetroPCS, Paulson & Co, publicly expressed its agitation regarding the deal and said that it would vote against the transaction, unless T-Mobile sweetens its offer. In addition, P. Schoenfeld Asset Management LP, which owns 2.3% of MetroPCS, has asked the two parties to update the merger documents with the latest regulatory filings of both the carriers before the vote.

Facing the pressure, the Richardson-based telecom provider moved the meeting date forward, hoping that it would give some more time to investors to evaluate and consider the benefits that the merger would bring to the combined entity.

The smallest of the national carriers, T-Mobile, is witnessing difficulties in fighting the stronger established players Verizon and AT&T. The combination with MetroPCS would give it the required strength to improve its struggling competitive position. The FCC also doesn’t seem to have any issue with the proposed merger, as it is rather encouraging telecom operators to grow stronger to combat the virtual duopoly of Verizon and AT&T.

But MetroPCS shareholders aren’t confident about the pending combination.

The issues raised

John Paulson, Hedge Fund manager of Paulson & Co., which has 9.9% stake in the company, is worried about the huge debt that would burden the company and lower its competitive position in the wireless market. T-Mobile’s total debt amounts to $15 billion, and this would lead to an aggregate debt of $23.2 billion for the combined company, which is enormous.

Paulson says that the consideration that the Richardson-based carrier is receiving to assume the $15 billion debt is insufficient. Further, considering the higher interest rates on the debt, and the impact of the added debt on MetroPCS’s share price, T-Mobile’s offer is lowering the value and not rightly compensating the carrier.

The debt to earnings ratio of the entity post merger would be as high as 3.6 compared to Sprint Nextel Corporation (NYSE:S)’s 1.5 post Softbank merger, Verizon’s 1.6, and AT&T’s 1.4. The new debt taken by Deutsche Telekom AG (ADR) (PINK:DTEGY) carries an exorbitant interest rate of 7%, while fellow rivals bear lower interest expense. Verizon’s cost of finance is 2.7%, AT&T’s interest rate is 2.1%, while Sprint Nextel Corporation (NYSE:S)’s is 4.2%.

Paulson says that he would back the merger only if the debt load is reduced by $6.6 billion, and the cost of finance of the fresh debt is lowered to 4.2%. The next option for T-Mobile is to raise the deal price for MetroPCS and win Paulson’s favor. P. Schoenfeld Asset Management has also shown similar concerns with respect to the deal.

In case the deal falls through, what would happen to MetroPCS?

Other suitors

There are high chances that both DISH Network Corp. (NASDAQ:DISH) and Sprint Nextel Corporation (NYSE:S) would grab the opportunity to bid for MetroPCS. Both Sprint and DISH Network Corp. (NASDAQ:DISH) are vying for Clearwire (NASDAQ:CLWR) . However, similar to MetroPCS investors, even Clearwire investors are extremely disappointed with Sprint’s $2.97 a share offer, which undervalues the company’s most prized possession.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!