Spectrum Concerns Led MetroPCS to Look for Merger Partner
MetroPCS was forced to contemplate a merger with T-Mobile after MetroPCS found itself unable to buy enough spectrum either in FCC auctions or on the secondary market, MetroPCS said in a filing at the SEC Monday, made in preparation for a shareholder vote on the deal. MetroPCS, which is to report Q4 earnings Tuesday, said the shareholder vote will take place March 28 in Richardson, Texas. Under the deal unveiled in October (CD Oct 4 p1) Deutsche Telekom will buy the smaller carrier to merge it with T-Mobile USA, its U.S. subsidiary.
Sign up for a free preview to unlock the rest of this article
Communications Daily is required reading for senior executives at top telecom corporations, law firms, lobbying organizations, associations and government agencies (including the FCC). Join them today!
As the FCC and the administration work on getting more spectrum in play for wireless carriers, MetroPCS told its shareholders spectrum was the key issue that led to the deal (http://bit.ly/YTt9sW). The U.S. has not held a major spectrum sale since the 700 MHz auction in 2008. Monday was the 122nd day of the FCC’s unofficial 180-day timeclock for reviewing the merger.
MetroPCS’s board has long recognized that the company needed more spectrum, the SEC filing said. “In response to the MetroPCS board’s directives, MetroPCS management attempted over the past four years to acquire a meaningful amount of spectrum to both expand MetroPCS’ licensed area and to increase the amount of spectrum in its existing service areas,” the filing said. “However, MetroPCS was unable to acquire a meaningful amount of additional spectrum and has concluded that it faces limited prospects in the future for the acquisition of significant additional spectrum from third parties or FCC spectrum auctions.” MetroPCS said it was “in light of” spectrum issues that its board decided to move forward on the merger with T-Mobile parent DT. The filing discusses spectrum more than 100 times, on 78 separate pages.
The SEC filing also describes in some detail the negotiations that led to the transaction, starting in 2011 when MetroPCS looked at possibly acquiring an unnamed carrier and was approved by a second unnamed carrier “regarding possible strategic transactions, including a possible acquisition of MetroPCS or commercial resale arrangement.” MetroPCS is widely believed to have engaged in discussions about a merger with Leap Wireless and later about being acquired by Sprint Nextel. On that point, MetroPCS said it started to work with J.P. Morgan Securities as it contemplated a merger with this “Company G,” according to the SEC filing. Talks with T-Mobile started in December 2011, at T-Mobile’s instigation, the filing said. Discussions heated up with T-Mobile in early 2012, while MetroPCS also continued negotiations with “Company G.”
The filing says the boards of both MetroPCS and Company G met on Feb. 22, 2012. “At the MetroPCS board meeting, the MetroPCS directors reviewed with JPMorgan and [financial adviser] Credit Suisse the terms of the Company G transaction,” the filing said. “The directors also discussed with Credit Suisse the terms of the transaction proposed by Deutsche Telekom, and the MetroPCS board and its advisors discussed various related matters, including the conditionality and uncertainties of Deutsche Telekom’s proposal, the dilutive nature of Deutsche Telekom’s proposal versus the accretive nature of Company G’s proposal, the synergies and execution risks associated with each proposal, the large upfront amount of financing needed under the Deutsche Telekom proposal, the fact that the merger agreement with Company G had been fully negotiated and the potential risk of losing the transaction with Company G in the event of a delay, as well as the provisions in the merger agreement with Company G that allowed MetroPCS’ board to exercise its fiduciary duties if Deutsche Telekom or another party made a superior proposal.” The MetroPCS board decided to go forward with the Company G deal, subject to approval by the second company. But later that day, a Company G representative called to say the board had not agreed to the proposed transaction.
The MetroPCS board met again Feb. 23, the filing said. “The directors revisited their analysis of our strategic alternatives, including our viability as a stand-alone company and prospects for obtaining spectrum other than through a business combination transaction,” the filing said. “The consensus of the directors remained that acquiring additional spectrum was essential to being a viable competitor in the industry and enhancing stockholder value, but we were limited in our opportunities to acquire additional spectrum. Acknowledging the challenges in acquiring meaningful additional spectrum, the directors authorized MetroPCS management to explore further whether a combination of MetroPCS and T-Mobile could be accomplished on attractive terms.”