T-Mobile|MetroPCS

On October 3, 2012, Deutsche Telekom and MetroPCS Communications announced that they have signed a definitive agreement to combine T-Mobile USA and MetroPCS. The combined company will retain the T-Mobile name. The combined company is expected to have approximately 42.5 million subscribers, $24.8 billion of revenue, $6.3 billion of adjusted EBITDA, $4.2 billion of capital expenditures and $2.1 billion of free cash flow (defined as EBITDA less capital expenditures) in 2012.

The combined company would have:

  • approximately 42.5 million subscribers,
  • $24.8 billion of revenue,
  • $6.3 billion of adjusted income before interest and taxes and depreciation and amortization have been subtracted (EBITDA),
  • $4.2 billion of capital expenditures, and
  • $2.1 billion of free cash flow (defined as EBITDA less capital expenditures) in 2012.

The merger is between the nation's fourth- and sixth-largest wireless carriers by revenue, but T-Mobile will not move any farther ahead in the list of largest U.S. cell phone companies. The combined company will still be smaller than third-place Sprint both in terms of sales and number of subscribers.

The combined companies have 29.5% of the prepaid market, according to Sanford C. Bernstein. [Consumers who opt for a prepaid mobile phone purchase credit in advance of service use. The purchased credit is used to pay for mobile phone services at the point the service is accessed or consumed.] MetroPCS helped pioneer affordable, no-contract cellphone service in the U.S.

T-Mobile’s aims for merging with MetroPCS are pretty clear: to harvest the regional carrier’s spectrum to bulk up its LTE network in key cities such as New York City, San Francisco and Los Angeles. In the top 25 markets, T-Mobile will see its average spectrum holdings increase from 63 MHz to 76 MHz, and much of those gains will be in the Advanced Wireless Service (AWS) band where both companies are launching LTE. T-Mobile currently has the spectrum to launch a 20 MHz network in half of its metro markets, but it would only be able to support a 10 MHz network in other regions. Metro’s licenses certainly don’t fill in all of those holes, but in 11 major cities the combined company will have more 50 MHz of AWS spectrum, enough for the new T-Mobile to launch a mammoth 40 MHz network. That’s double the size of any 4G network market leaders AT&T and Verizon have today.

The new company plans to deploy a 4G-LTE network that will work across both customer bases. Company executives said they expect all MetroPCS users to be migrated to T-Mobile's network by the end of 2015. But upgrading all customers discontinuing the legacy technologies will be a gradual, multi-year process. That complex migration will be expensive -- unexpected delays and obstacles could wipe out the $6 billion to $7 billion the two companies say they will gain from "cost synergies" -- and is "a major risk for derailing the benefits of the deal," according to Mike Roberts, analyst at Informa Telecoms & Media.

Nature of the Transaction: 

The transaction 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 (approximately $4.09 per share prior to the reverse stock split) and acquire all of T-Mobile’s capital stock by issuing to Deutsche Telekom 74% of MetroPCS’ common stock on a pro forma basis. Deutsche Telekom has also agreed to roll its existing intercompany debt into new $15 billion senior unsecured notes of the combined company, provide the combined company with a $500 million unsecured revolving credit facility and provide a $5.5 billion backstop commitment for certain MetroPCS third-party financing transactions.

Updates

Supporters in the news

Detractors

Paulson & Co, Metro's largest shareholder

Detractors in the news

Related Headlines

Syndicate content