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Welcome T-Metro, is Verizon Wireless next?

MetroPCS approve merger with Deutsche Telekom unit at last, Verizon said to be preparing Vodafone buyout

By CAROLINE GABRIEL

Published: 26 April, 2013

READ MORE: M&A | US

MetroPCS shareholders have approved the merger with T-Mobile, after Deutsche Telekom sweetened its offer earlier this month by reducing the debt burden on the new entity. With the final hurdle crossed, the deal should close by May 1. Meanwhile, the US telco landscape could see another European giant reducing its presence, if Verizon succeeds in buying out joint venture partner Vodafone.

MetroPCS shareholders will receive an advance cash payment of about $1.5bn followed by a reverse stock split of the MetroPCS shares before the company is merged with TMo. Merging the US's fourth and fifth cellcos creates a total customer base of 40m and boosts TMo's spectrum position significantly.


This increased scale should provide a more viable platform to help the cellco reverse its recent decline. It has lost 13% of its contract user base since 2009. MetroPCS has also been struggling to remain viable on its own. It announced first quarter results this week, and saw net income fall 8% year-on-year to $19.7m, on a revenue increase of just 1%, to $1.29bn. The prepaid-only carrier added 109,000 new customers in the quarter, for a total of 9m. The first US carrier to launch commercial LTE, it said 4G subscribers now account for 39% of its base.

The new T-Mobile will be publicly traded, which may enable DT to exit the US altogether in future. It will have a 74% stake in the merged firm and has pledged not to sell its shares for 18 months.

DT's outgoing CEO Rene Obermann said "The merger with MetroPCS is extremely important, since it enables us to be more aggressive in the USA." He added that he was "very happy and also relieved that we finally got this solution".

Its rival in its European homeland, Vodafone, has been an aggressive player in the US for years, via its successful Verizon Wireless joint venture, though it has never had the full control some shareholders - bruised by years of getting no dividend from the US partner - believe it should have.

Another way for Vodafone to expand in the US has recently been thought to be a merger with Verizon, according to some commentators. This mega-deal seems risky and improbable, but reportedly, there have been at least exploratory talks about various scenarios - Verizon buying Vodafone, even perhaps with AT&T help; Vodafone buying Verizon; the partners merging and then hiving off international activities to Vodafone. Far more likely than these sometimes wild speculations is that Verizon will finally achieve its long-held aim of buying out its partner in Verizon Wireless, though it will have to come up with a very attractive offer to persuade Vodafone to let go of a source of cash, profit and a strong foothold in the word's second largest mobile market.

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