MetroPCS shareholder P. Schoenfeld Asset Management has lashed out at the proposed merger between MetroPCS and T-Mobile USA and said it will vote against the deal unless substantial changes are made to the terms.
The hedge fund believes the combined entity would have unsustainable debts, a credit rating substantially below investment grade and have to pay a punitive rate of interest on financing provided by Deutsche Telekom (Bonn, Germany).
Under the proposed arrangement, Deutsche Telekom would own 76% of the combined entity while MetroPCS (Richardson, USA) shareholders would receive the remaining 24% along with about $1.5 billion in cash.
P. Schoenfeld Asset Management (New York, USA) expressed its misgivings about the transaction in a letter sent to the boards of both Deutsche Telekom and MetroPCS.
Among other problems noted by the hedge fund is the merged company’s high ratio of net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) of 3.6.
P. Schoenfeld Asset Management says this compares very unfavourably with a ratio of 2.7 for MetroPCS as a standalone company, further noting that rival Sprint (Overland Park, USA) reports a net-debt-to-EBITDA ratio of just 2.2.
“We believe that the current proposed terms for the reverse merger between MetroPCS and T-Mobile [Bellevue, USA] are unattractive relative to a potential standalone alternative and that the current structure of the transaction is unsupportable,” said the hedge fund’s letter. “We believe that Deutsche Telekom has burdened MetroPCS/T-Mobile with too much intercompany debt, at terms that are not based on any market reality.”
MetroPCS immediately responded to the letter by issuing a statement promising to review and consider the “perspectives” it describes, while simultaneously defending the move.
“The board believes that the proposed combination with T-Mobile is in the best interests of MetroPCS and all MetroPCS stockholders and continues to recommend that MetroPCS stockholders vote in favor of the proposed combination,” said MetroPCS. “The pending transaction with T-Mobile is the result of a thorough process that began over two years ago … considering a number of potential transactions with different strategic partners.