While the T-Mobile/AT&T (News - Alert) merger may be dead in the water, the former’s parent company, Deutsche Telekom, has signed a definitive agreement with MetroPCS Communications, Inc. T-Mobile (News - Alert) will combine with MetroPCS, creating what will be positioned as a leading value carrier for the U.S. wireless market.
The combined company, according to a T-Mobile announcement, will operate under the T-Mobile name and brand, and focus on delivering the enhanced customer experience with deeper network coverage, a wider product selection and a streamlined strategy to the development of one common LTE (News - Alert) network.
A key differentiator for the new T-Mobile will be the company’s expanded spectrum, scale and financial resources. In a market dominated by Verizon (News - Alert), AT&T and Sprint, this move is expected to bolster T-Mobile to more effectively compete.
Structured as a recapitalization, the transaction was approved by the board of directors of both MetroPCS and Deutsche Telekom (News - Alert). As part of the deal, MetroPCS will make a cash payment of $1.5 billion to shareholders and declare a 1 for 2 reverse stock split.
The company will also acquire all of T-Mobile capital stock in exchange for 74 percent of MetroPCS common stock issued to Deutsche Telekom.
The German company will roll its existing intercompany debt into the combined company’s senior unsecured notes valued at $15 billion. The new T-Mobile will be provided with $500 million in unsecured revolving credit and $5.5 billion in a backstop commitment against specific MetroPCS third-party financial transactions.
“We are extremely pleased to announce this transaction with MetroPCS, which enhances Deutsche Telekom’s position in the expanding U.S. wireless market,” said René Obermann, chief executive officer at Deutsche Telekom.
“The T-Mobile and MetroPCS brands are a great strategic fit – both operationally and culturally,” Obermann added. “The new company will be the value leader in wireless with the scale, spectrum and financial and other resources to expand its geographic coverage, broaden choice among all types of customers and continue to innovate, especially around the next-generation LTE network. We are committed to creating a sustainable and financially viable national challenger in the U.S., and we believe this combination helps us deliver on that commitment.”
When considering analyst consensus estimates for T-Mobile and MetroPCS, the newly formed T-Mobile should be able to claim 42.5 million subscribers, $24.8 billion in revenue, $6.3 billion in adjusted EBITDA, $2.1 billion in free cash flow and $4.2 billion in capital expenditures.
As a competitor in the intensely coveted U.S. wireless market, the newly structured T-Mobile will be able to provide a path to a minimum of 20x20 MHz of 4G LTE in a number of key markets; access to more compelling handsets, content and applications thanks to the combined market power of T-Mobile and MetroPCS; leverage growing opportunities in the no-contract segment; offer a wider variety of services; introduce MetroPCS plans and services to existing T-Mobile customers; and leverage a stronger network to advance B2B offerings and its MVNO platform.
Said John Legere, president and chief executive officer at T-Mobile: “The combination with MetroPCS is another logical and significant step that will accelerate our Challenger Strategy and enable us to deliver amazing, affordable and trusted 4G services, while providing opportunities to expand geographic territories and serve more customers. We will be a stronger, value-focused competitor, providing customers with offerings such as our Unlimited Nationwide 4G Data and ‘bring your own device’ plans.”
MetroPCS is also excited about the move, as Roger D. Linquist, chairman and CEO shared in the joint statement that the transaction provides current shareholders with immediate cash payment and the opportunity to participate in the exciting potential of the newly combined company.
The new T-Mobile will deliver cutting-edge 4G LTE, while accelerating its rollout of 4G LTE.
With like network strategies and LTE networks, T-Mobile and MetroPCS are well positioned to combine to accelerate the deployment of advanced services that could provide a competitive advantage in the U.S. wireless market.
Ultimately, the resulting services will extend greater value to both customers and shareholders.