By Thomas Gryta
The largest shareholder in MetroPCS Communications Inc. (>> MetroPCS Communications Inc), hedge fund Paulson & Co., plans to vote its 9.9% stake against the planned acquisition of the wireless carrier by Deutsche Telekom AG's (DTE.XE, DTEGY) T-Mobile USA.
In a letter to the MetroPCS board, manager John Paulson argued the deal's structure is unfair to shareholders, but that it would support a restructured deal and believed the company could get a more attractive alternative offer.
Paulson joins another hedge fund, P.Schoenfeld Asset Management, which has a stake of about 2.3%, in opposing the deal. P.Schoenfeld Asset Management has filed a proxy to solicit other investors to join its position, but it remains unclear if the opposition can get enough support to affect the deal. Shares of MetroPCS were unchanged at $9.80 in after-hours trading.
Representatives of MetroPCS and T-Mobile didn't immediately respond to requests for comment Thursday. The board of MetroPCS has continued to back the combination.
The current transaction is structured as a reverse merger, meaning T-Mobile will merge into the already-public structure of MetroPCS, with Deutsche Telekom getting 74% of the company. MetroPCS shareholders will get the rest, along with $1.5 billion in cash, or about $4.09 a share.
In the letter, Mr. Paulson said it believed in the "strategic merits of the proposed combination," but the resulting company will have "too much debt at too high an interest rate to be competitive in the well-capitalized U.S. wireless industry."
Mr. Paulson said the firm could support a deal with one or more of the following changes: reduced debt between the new company and Deutsche Telekom, a lower interest rate, more cash or a higher share-exchange ratio.
"With the reduction in debt and lowered interest rate, we would support the transaction at the same exchange ratio," the letter said.
Furthermore, Mr. Paulson said an independent MetroPCS could pursue an alternate deal with "industry peers that previously made offers at significant premiums to MetroPCS' current share price."
MetroPCS has set March 28 as the date for its shareholders to vote, and both companies have projected the deal to close in early April.
Write to Thomas Gryta at firstname.lastname@example.org
Corrections & Amplifications
This item was corrected at 10:44 a.m. EST to clarify the name of P.Schoenfeld Asset Management in the third paragraph. The original incorrectly stated just P.Schoenfeld.
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