MetroPCS T-Mobile

Citing unfavorable terms, investor advisory firm Institutional Shareholder Services Inc. has rejected the proposed merger of T-Mobile USA and MetroPCS Communications Inc. ISS questions “Why now?” stating that MetroPCS could and should invest in acquiring new spectrum with its $1.5 billion in cash rather than allowing selling the company at such a low rate.  ISS claims planning this strategy would allow MetroPCS to operate on its own and garner additional offers, more importantly likely better offers. In short the complaint is that this deal undervalues MetroPCS.

MetroPCS seems to face a bit of an uphill battle to allow this merger to work, its largest investor, Paulson & Co. has openly disapproved of the deal. The most popular battle cry for opposition is how the newly formed telco will be saddled with debt. As part of the deal Deutsche Telekom would own three-quarters of the new company while handing over $1.5 billion in cash to MetroPCS shareholders and footing another $15 billion loan to the business. Some investors are not so keen on the idea of a relatively high 7-percent interest rate on the loan.

The proposed merger is a move to compete against larger carriers. While costly, supporters believe its either this deal or see both T-Mobile and MetroPCS fall into further irrelevancy. The proposed merger would create a subscription base of 42.3 million, less than half the size of AT&T or Verizon Wireless, but does place the company in better footing than standing alone.

Opposition to the merger at this point may be moot as the Federal Communications Commission, Department of Justice and Committee on Foreign Investment in the U.S. have all approved the deal as well as key investors of both companies.