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T-Mobile USA's plan to merge with rival wireless carrier MetroPCS ran into new headwinds Thursday amid fresh complaints that the deal would shortchange shareholders of the smaller firm.
The latest protests came from the investment firm P. Schoenfeld Asset Management LP, which holds 2.5 percent of MetroPCS shares, and from the influential advisory firm Institutional Shareholder Services.
These "no" recommendations echoed protests voiced recently by hedge fund manager John Paulson, who has a 10 percent stake in the smaller wireless carrier.
The merger, described as a way to help the number four carrier compete in the US market, has won US regulatory approval, but needs to win over MetroPCS shareholders at a special meeting set for April 12.
The opponents argue that T-Mobile parent Deutsche Telekom would get special treatment with 74 percent of the shares, and would dump $15 billion in debt on the combined firm.
An ISS report released Wednesday said MetroPCS shareholders should be entitled to 37 percent of the merged company, instead of 26 percent.
"Effectively, for the same price, shareholders can own PCS as it stands today -- a company with strong recent operating performance, a low-risk debt profile, and controlled by its current shareholders -- or own a share of the combined... facing a difficult turnaround, with a higher leverage ratio and greater interest burden, and controlled by DT," ISS said.
Schoenfeld said the ISS report correctly points out problems with the deal, and added that shareholders should consider "potential strategic alternatives... such as PCS remaining a standalone company."
MetroPCS on Thursday reiterated its support for the deal and said the ISS report "contains material flaws and reaches the wrong conclusion." It added that another advisory firm, Egan-Jones, endorsed the deal.
"If stockholders vote against the proposed combination, MetroPCS stockholders will not enjoy its compelling benefits, which could lead to a loss of value for MetroPCS stockholders, and there is no assurance that MetroPCS will be able to deliver the same or better stockholder value," the Texas-based firm said.
Earlier this week, Paulson responded to reported comments of T-Mobile chief John Legere that the deal would not be blocked by "greedy hedge funds."
"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," Paulson said in a statement.
He added that because of the added debt "Deutsche Telekom gets 85 percent of the total consideration" in the new firm if the deal goes through.
"It is not surprising that Deutsche Telekom is so eager to close this deal as they get the lion's share of the benefits," Paulson added.
"If Deutsche Telekom wants to get MetroPCS shareholder support, we suggest Deutsche Telekom significantly reduce the debt they are taking back and/or dramatically increase MetroPCS's proforma share of the combined company."
© 2013 AFP
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