T-Mobile USA’s plan to merge with MetroPCS may have hit its first bump in the road. A group of disgruntled MetroPCS shareholders has sued to block the deal. A copy of their filing was obtained late yesterday by TmoNews.
The investors believe that MetroPCS’ management is set to receive millions in special payments, while ordinary shareholders will get less than the stock is worth today. The deal MetroPCS struck earlier this month with Germany’s Deutsche Telekom, which owns T-Mobile USA, calls for investors to exchange each share for $4.09 plus half a share of stock in the combined company. With MetroPCS currently trading at around $11.50 per share, shares in the new company would have to be worth $15.00 each in order to make investors whole. ($4.09 plus half of $15.00 is $11.59, roughly equal to the current value of MetroPCS stock.)
Directors of both companies believe the merger will create long-term value for shareholders by giving T-Mobile USA access to an LTE network, a larger subscriber base, and a stronger foothold in the rapidly growing prepaid market. Both T-Mobile USA and MetroPCS clearly recognize the need to partner with other companies in order to stay competitive. T-Mobile USA tried to merge with AT&T last year, and MetroPCS was in talks to be acquired by Sprint Nextel earlier this year. After MetroPCS announced its deal with Deutsche Telekom some MetroPCS investors held out hope that Sprint would swoop in with a higher counterbid. But those hopes were dashed when Sprint announced plans yesterday to be acquired by Japan’s Softbank.
The shareholders are seeking “injunctive and declaratory relief,” meaning that they want an injunction to presumably stop the deal from moving forward. They claim that the MetroPCS board did not honor its fiduciary duty to get the best deal possible for shareholders.
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