Today I will solely focus on the Wireless consolidation between T-Mobile and MetroPCS. American cellular service is dominated by Verizon and AT&T in the wireless spectrum in the United States. The chart above shows the market share of the top U.S. wireless carriers, and market cap is based on only these top players. It is no coincidence that both of them own a large portion of market share in this industry. According to David Goldman, T-Mobile is only the 4th largest carrier by cell phone subscribers. The above indicates that the merger should be seriously considered because there is too much disparity in market cap between the competitors. Sprint has lost market share and customers over the years and soon should be bought up by Softbank (a Japanese company). Paulson and the research company by the acronym of PSAM agree that the merger will definitely create synergies and cost savings that are in the billions in the statements filed with the SEC. Moreover, the Shareholders meeting is taking place on March 28, 2013 and the idea is that shareholders will get $4.06 per share over the closing price on March 27, 2013. The deal is very complex in which it is not straight Cash, Debt, and Equity deal. It involves all three, but it is structured in a Reversed 1-to-2 Stock Merger as well.
The deal would give T-Mobile 74% of the company power and 26% to MetroPCS shareholders after dilation of shares and the creation of the new merged company. The biggest obstacles to this merger is John Paulson and P. Schoenfeld Asset Management who will not approve the terms. However, they will consider relinquishing their shares if the proposal was revised based on 2 main requirements. The first, T-Mobile adjust the Debt interest rate from 8% to 4.2% to decrease the EBITDA multiple. secondly, they decrease the debt financing by $6.6 billion. Based on these requests by the two large shareholders, I believe T-Mobile will implement a sense of game theory. Either, cooperate or defect. The consequence of defecting will be dire. The reasoning is because of detrimental business environments. One possibility is that T-Mobile will further lag behind AT&T and Verizon. In addition, they will have a smaller network of wireless towers. Moreover, The shares could possibly drop due to a failed merger announcement. Going forward, the business for wireless technology is fierce and if the consolidation does not occur the two companies will be left behind in the United States. Now if the outcome is cooperate, then we may see some upside. The shareholders will most likely get the 47% ($14.93) adjusted premium from the price close of $9.39 which is what the SEC filling holds as the share price closing assumption on the day of the imminent merger.
Paulson owns about 8% of MetroPCS and his hedge fund as dropped from $38 Billion to $11 Billion since 2011 which means he is banking pretty heavily on this Event Driven "bet." That is why he filed his ultimatum and is trying to influence the public to manipulate the deal in which he stands to gain substantially. Overall, besides Paulson's interest in the situation the companies will benefit if they merged together. Ultimately, we will see on March 28 how shareholders will vote and determine the future of these 2 firms.
-Phil
