The deal is structured as a recapitalization, in which MetroPCS will declare a 1 for 2 reverse stock split, make a cash payment of $1.5 billion to its shareholders and acquire all of T-Mobile's capital stock by issuing to Deutsche Telekom, its parent company, 74 percent of MetroPCS' common stock. (An additional wrinkle: the new company will have about $15 billion in debt.)
In other words, 26 percent of the new company will be owned by MetroPCS shareholders and 74 percent will be owned by Deutsche Telekom -- a rebuff to rumors that the German company was trying to exit the U.S. market.
The new company will keep the T-Mobile name, locate its headquarters in Bellevue, Wash. (with a sizeable presence in Dallas, Texas) and continue trading on the New York Stock Exchange. T-Mobile president and CEO John Legere will keep his title for the new combined company, which plans to operate the two brands as separate customer units led by T-Mobile's Jim Alling and MetroPCS' Thomas Keys, respectively.
The companies believe the merger will offer more network coverage, a broader product lineup and "a clear-cut technology path to one common LTE network," and serves as a hedge against the increasing consolidation at the top of the U.S. market, where rival carriers Verizon and AT&T lead the market by a considerable margin.
The announcement comes just a year after AT&T made a failed bid to acquire T-Mobile.
T-Mobile has long targeted the low end of the wireless market, regularly undercutting the prices of its wireless rivals and aggressively pushing out new smartphones in a bid to woo customers to the pink side.
Without Apple's iPhone or Verizon's well-marketed "Droid" lineup, however, the company has failed to slow an exodus of customers in a market where, paradoxically, they choose to spend more on their mobile devices.
The combined company will continue to bet on no-contract services; now, it merely has more customers for them under the same corporate roof. (The new company is expected to have approximately 42.5 million subscribers and $24.8 billion of revenue.) The deal will help intensify T-Mobile's battle with Sprint over the more price-sensitive side of the wireless market.
"Ultimately, this combination will create a stronger wireless provider nationally with broader value offerings to better serve our combined customers and drive shareholder value," MetroPCS chairman and CEO Roger Linquist said.
The deal is expected to close in the first half of 2013.