NEW YORK, N.Y. – Wall Street gave T-Mobile US Inc., the new-born combination of T-Mobile USA and MetroPCS, a warm welcome on its first day of trading.
The stock was at $16.45 in midday trading Wednesday, up 87 cents, or 5.5 per cent, from the value of MetroPCS shares at Tuesday’s close. That suggests the combined company is attracting new investor interest.
The deal was structured as a reverse merger. The larger T-Mobile USA, which was a wholly owned subsidiary of Germany’s Deutsche Telekom AG and thus lacked its own stock listing, was “acquired” by the smaller MetroPCS Communications Inc. and inherited its stock listing. However, Deutsche Telekom owns 74 per cent of the new, combined company.
The stock is trading under a new ticker symbol, “TMUS,” on the New York Stock Exchange.
Goldman Sachs analyst Matthew Niknam started coverage on Wednesday with a “Buy” rating and a $22 price target. Deal-making in the U.S. wireless industry is at a fever pitch, and Niknam believes Deutsche Telekom would be willing to sell its stake in the company.
AT&T Inc. tried to buy T-Mobile USA in 2011 with an offer much higher than the current market value, but the deal fell through because of opposition from regulators. Satellite-TV company Dish Network Corp. last month launched an unsolicited bid for No. 3 wireless carrier Sprint Nextel Corp., but Sprint has already agreed to sell to Softbank Corp. of Japan. There is speculation that T-Mobile could be Dish’s next target, if the Sprint offer is rebuffed.
T-Mobile, the No. 4 U.S. cellphone carrier, is adding 9 million MetroPCS customers to its own 34 million. The combined company will still lag No. 3 Sprint Nextel Corp. in size.
No immediate changes are expected for customers of either company, and T-Mobile plans to keep the “MetroPCS” brand. Over the next two years, however, the company will shut down MetroPCS’s network, which means MetroPCS phones will eventually stop working. T-Mobile will use the space freed up on the airwaves to boost its own coverage and data speeds.
In March, T-Mobile dropped its conventional two-year service contracts in favour of selling phones with installment plans. It’s made the change a centerpiece of its marketing, calling itself the “Un-carrier.” It’s a break with industry practices, and a reflection of the fact that T-Mobile has had a hard time attracting people to its contract-based plans. It has been losing customers from these plans for two years.
MetroPCS, meanwhile, started losing customers last year after many years of growth. It sells cheap phone service to low-income urban customers, who often line up in its stores to pay their monthly fees in cash.
MetroPCS shareholders got $4.05 in cash and half a TMUS share for each MetroPCS share.
MetroPCS’s board agreed to sell to T-Mobile in October, but shareholders and shareholder advisory firms called the offer inadequate. T-Mobile improved its bid three weeks ago by reducing the amount of debt it would transfer to the new company and lowering the interest rate on the debt. The improved offer won shareholder approval last week.
The new company is worth $11.8 billion at Wednesday’s prices, and Deutsche Telekom’s stake is worth $9 billion. As such, it’s a consolation prize compared to the $39 billion that AT&T agreed to pay two years ago.
The combined company’s president and CEO is John Legere, and T-Mobile is keeping its headquarters in Bellevue, Wash. Former MetroPCS Vice Chairman and Chief Financial Officer J. Braxton Carter will serve as CFO, and the company is retaining a “significant presence” at MetroPCS’s old headquarters in Richardson, Texas.
It will have 11 board members, including two of MetroPCS’s existing directors. Deutsche Telekom deputy CEO and chief financial officer Tim Höttges will serve as chairman.