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TOPIC: MetroPCS Deal With T-Mobile In Reverse Merger

MetroPCS Deal With T-Mobile In Reverse Merger 6 years 1 month ago #1638

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MetroPCS Agrees To Deal With T-Mobile In Reverse Merger

Pre-paid wireless carrier MetroPCS has reached an agreement to combine forces with Deutsche Telekom’s T-Mobile USA unit. The combined company will keep the T-Mobile name.

Yesterday, Deutsche Telekom disclosed in a regulatory filing that talks between the two companies were underway.

MetroPCS shares, which yesterday jumped $2.05, or 15%, to $13.57, this morning have improved another 31 cents, or 2.3%, to $2.3%.

The complex deal, which has been approved by the boards of both companies, is structured as a recapitalization of MetroPCS, which will be the surviving company, keep its stock listing, but take on the T-Mobile name. Among other things, the structure instantly provides liquidity to Deutsche Telekom or its ownership stake in T-Mobile.

Here’s how it works:
•MetroPCS will declare a 1-for-2 reverse split.
•The company will pay holders $1.5 billion in cash, about $4.09 a share before the reverse split.
•MetroPCS will acquire all of T-Mobile USA’s stock in exchange for a 74% stake in MetroPCS.
•DT will roll existing inter-company 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.

The company said the combined company in 2012 based on analyst estimates will have 42.5 million subscribers, $24.8 million of revenue, $6.3 billion of adjusted EBITDA, $4.2 billion of cap ex and $2.1 billion of free cash flow.

“We are extremely pleased to announce this transaction with MetroPCS, which enhances Deutsche Telekom’s position in the expanding U.S. wireless market,” Deutsche Telekom CEOP René Obermann said in a statement. “The T-Mobile and MetroPCS brands are a great strategic fit – both operationally and culturally. The new company will be the value leader in wireless with the scale, spectrum and financial and other resources to expand its geographic coverage, broaden choice among all types of customers and continue to innovate, especially around the next-generation LTE network. We are committed to creating a sustainable and financially viable national challenger in the U.S., and we believe this combination helps us deliver on that commitment.”

The companies project $6 billion to $7 billion in cost synergies.

The combined company is expected to generate five-year compounded annual growth of 3%-5% in revenues, 7%-10% in EBITDA and 15%-20% in free cash flow. The combination is targeting an EBITDA margin in the 34%-36% range at the end of the five period period.

The newly renamed company will keep trading on the NYSE. CEO will will be John Legere, currently CEO of T-Mobile USA. J. Braxton Carter, now CFO of MetroPCS, will be CFO of the combined company. The T-Mobile unit will be run by Jim Alling, now COO of T-Mobile, and MetroPCS will be headed by Thomas Keys, now COO of MetroPCS.

After closing, corporate headquarters will be in Bellevue, Washington.

The deal is subject to shareholder approval, and various regulatory approvals. The transaction is expected to close in the 2013 first half.
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