MetroPCS shareholders revolt against T-Mobile CEO's merger tirade

MetroPCS shareholders revolt against T-Mobile CEO's merger tirade

Summary: When you're the head of a major U.S. cell network, or any other major company for that matter, with a merger still at the behest of the other firm's shareholders, it's best to choose your words carefully. Enter T-Mobile CEO John Legere who, well, didn't.

SHARE:
7
appmetropcstmobilebuypot

The merger between T-Mobile USA and MetroPCS still has one hurdle to jump over: MetroPCS' shareholders, which are set to vote on the deal in just over two weeks time on April 12.

While U.S. federal regulators have already approved the deal between the firms, two MetroPCS shareholders are attempting to apply the brakes, by calling out T-Mobile chief executive John Legere who said on Tuesday that he expects the deal to go through. 

At the New York launch of T-Mobile's latest press event, Legere led an hour-long event in which is swore (give or take a couple) 11 times in total. Thankfully, Legere kept most of his swearing to a minimum when diplomatically discussing the MetroPCS merger. 

Yesterday, investor Paulson & Co., which holds a 9.9 percent stake in the fifth largest U.S. cellular carrier, issued a statement (via Barrons) in which it "strenuously objects to [Legere's] characterization of MetroPCS shareholders as greedy because they believe the current terms of the merger are poor for MetroPCS shareholders."

The war of words went on, taking a hefty swipe at T-Mobile USA's Germany-based parent company Deutsche Telekom:

If anyone is being greedy here, it is Deutsche Telekom by stripping out $15 billion of senior debt at above market rates and terms for themselves before the proforma shareholders get anything. MetroPCS shareholders are left with a subordinated minority stake in an over leveraged equity stub. [...] We believe MetroPCS is worth more as a standalone company rather than with T-Mobile under these unfavorable terms.

While MetroPCS were expected to pass the deal without too much arm-flapping, now the largest shareholder warns Deutsche Telekom to "significantly reduce the debt they are taking back," or "increase MetroPCS' proforma share of the combined company."

At the end of the day, it's the shareholders' who will accept or decline on the deal, and they want the very best deal to line their coffers. That's not being greedy, that's just business. 

To make matters worse, Reuters reports that influential proxy advisory firm ISS agreed on the most part with Paulson & Co. and said shareholders should vote against the deal, citing the deal undervalued the company. 

In a note to investors, ISS said because of the "negative market response" to the deal, citing a 14 percent dip in MetroPCS' share price since the announcement, "the lower equity split than justified by the contribution of [MetroPCS] to the combined entity, and the potential for PCS to continue to thrive as a stand-alone company, shareholders should vote against this transaction."

That's finance talk for saying the 24 percent of the final company ownership that MetroPCS will ultimately get isn't enough and should be balanced more equally between the two firms. Also if the deal completes, MetroPCS will declare a one-for-two stock split and dish out $1.5 billion in cash back to its shareholders.

Leading the revolt is activist investor group P. Schoenfeld Asset Management, which owns 2.5 percent of MetroPCS' stock, which is fighting against the merger in a proxy battle against the deal. 

Combined, the two shareholder groups own 12 percent of MetroPCS' stock. Though a deal could still be struck in spite of the revolt — the company's second largest investor Madison Dearborn, which holds 8.3 percent of its stock, has already given its blessing and hasn't budged — it falls in T-Mobile (and therefore Deutsche Telekom's) best interests to keep the peace.

There is a lesson here. When you're inches away from clearing a massive deal that could see a combined company of the fourth and fifth largest U.S. cell carrier take on the third largest company in that space, it's better to keep your mouth firmly shut.

Or, at very least, say nice things and try not to ruffle too many feathers. 

And stop swearing.

Topics: Networking, Smartphones

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

7 comments
Log in or register to join the discussion
  • Enough Is Enough.

    Point is: The merge will go through. It's been a done deal for the last 45 days. These other "large shareholders" don't hold enough weight to sway the boat. If anything, they should be happy.

    Although MetroPCS is a company doing well on its own, it will never be worth more as a stand alone company versus a combined venture. In fact, this is the last year MetroPCS will even continue trending upward as they have. You see, MetroPCS's revenue grew simply because market share grew. Market share grew, for MetroPCS in particular, for two reasons: The economy was bad and the number of people using phones period grew.

    I say the economy because a large percent of the MetroPCS base only has MetroPCS because of the affordability of the plans and some devices. It has nothing to do with the portfolio of devices they carry or how much they love MetroPCS. With a bad economy, for many people, MetroPCS was the only choice. Why? Because most other companies run a credit check, sometimes requiring a deposit. And for fair/bad credit consumers, that results in a large deposit. In turn, that bad credit consumer marches right over to MetroPCS and gets a phone. By default.

    So now two things is happening: The economy is on the uprise and T-Mobile is offering a really new and cool solution. Yes, more expensive for the rate plan, but you have your no credit option. You now also have your option to break down payments. You now have the option to pay less upfront. Oh, and for those with bad credit, you now have the same options as MetroPCS provided.

    With that being said, I dont know why anyone is complaining. MetroPCS customers are happy about this merge. Very happy about it. Maybe these investors should get off vacation, walk into the streets of America and ask about what the hell is going on.

    Let it just ride out. For once, just take an L, sit back, and let good happen. At the end of the day, its about the consumers. The consumer puts money into your pockets. Initial numbers and debts, throw them out of the window and focus on our goal. Providing the best for consumers, not investors.
    jd.sharpe
    • you over look

      the fact that people, at least lots of them don't like giant companies. Many people will always migrate to the underdog. When the underdog has been prices, yet still meets your needs they will get your business.

      That has a lot to do with their growth, and if anything it will increase not wind down. More and more Americans are unhappy with the way larger carriers are mistreating them. They are more than happy to jump to a smaller company.

      I'm one of them.
      timspublic1@...
      • Wrong.

        Most people are fine with large companies as long as they are treated well. Otherwise the large companies wouldn't be large.
        baggins_z
    • So You Are Saying I'm with MetroPCS Because I Can't Go Anywhere Else?

      Dude...you are so far off base its pathetic. I'm with Metro because they offer more VALUE. With my credit, I could go to any carrier...but why would I? Metro's phones are UNSUBSIDIZED, not cheap as you suggest. Anyone who has done the math can easily figure out that paying an unsubsidized price for a phone up front and cheaper monthly service rates will, over the span of a competitor's two-year contract, save the subscriber hundreds of dollars.

      Combine that savings with the fact that there are no contracts, the sell the latest phones, they are keeping the OS's up-to-date over-the-air, their 4G coverage is really good in the major metro areas.

      With all of those advantages, why would I feel 'trapped' at Metro...waiting to get out? Believe me...I could go anywhere. Metro is not full of subscribers who are waiting to bail. Metro is, however, full of subscribers who don't understand why anyone on planet Earth would fork over $200 for a new phone just to be locked into a contract that requires them to pass a credit check AND pay DOUBLE the subscriber rates (yes...I said double. I lowered my monthly $110 Verizon bill to $55 with Metro and I have not experienced a loss of service or functionality).

      I have been with MetroPCS for 3 years now, and I have taken the $55/month I am saving and put it into a savings account which now stands at $1980.

      I assume that the people still at Verizon and AT&T simply cannot do math.
      malcolm@...
  • better prices

    zdnet needs to add an edit function to correct minor typos.
    timspublic1@...
  • Yes And...

    ...Not only an---
    1) Edit function restored, but let
    2) Flagging be actual Flagging, not some clumsy kind of Thumbs/Vote Down.
    3) Also the rogue out of control Profanity Editor needs desperately to be recalibrated. I've had posts disappear into cyberspace that the Editor flagged. I pored over them trying to imagine what was wrong. Many have this same irritating issue.
    4) If you read the Articles, and scroll down to read more, then open one, you can't get back to where you left off. You lose your place. It can be a long process to find you place again manually. Not worth it many times.
    5)ZDNet needs a Contact address to receive feedback of technical glitches and problems. Even maybe constructive suggestions. Since the revamp, ZDNet has gone mostly downhill.
    PreachJohn
  • Re: Flagging be actual Flagging, not some clumsy kind of Thumbs/Vote Down.

    +1 to that.
    ldo17