Investment firm Paulson & Co has indicated that it may join forces with P. Schoenfeld Asset Management (PSAM) in opposing the merger between T-Mobile USA and MetroPCS – the fourth- and fifth-biggest operators in the US – that was proposed in October last year.
Paulson & Co (New York, USA) is the largest MetroPCS (Richardson, USA) shareholder, with about 8.7% of the company, and its suggestion that it may vote against the merger signals growing disquiet with the terms of the transaction.
Earlier this month, PSAM (New York, USA), a hedge fund with a stake of about 2% in MetroPCS, promised to vote against the deal in a letter sent to the boards of Deutsche Telekom (Bonn, Germany), the owner of T-Mobile USA (Bellevue, USA), and MetroPCS.
In its letter, PSAM said the merger did not provide good value for MetroPCS shareholders and demanded that MetroPCS be given a 37% stake in the combined entity, rather than the 26% proposed.
It went on to argue that a 26% stake would only be acceptable if Deutsche Telekom took action to reduce the combined entity’s debts by about $3.5–4 billion.
As things stand, the company will have total debts of about $15 billion after the merger goes ahead, according to PSAM.
PSAM also noted that MetroPCS shares have fallen in value since the merger was announced, proving that other shareholders are similarly unhappy.
After PSAM had demanded access to MetroPCS books to convince other shareholders of the merger’s flaws, Paulson & Co voiced its own concerns but said it had not yet made a final decision on how to vote.
Nevertheless, Paulson & Co indicated it was broadly in agreement with PSAM.
The rumblings of discontent will be deeply troubling to executives at T-Mobile USA and MetroPCS, who have until now sounded confident about the deal’s prospects.
Its failure would mark a second consecutive upset for T-Mobile USA, whose recent attempt to merge with AT&T was ultimately scuppered by regulatory authorities.
MetroPCS shareholders are set to vote on the transaction later this month or in early March.