http://www.businessweek.com/news/20...id-to-talk-to-metropcs-on-t-mobile-usa-merger
Deutsche Telekom Is Said to Discuss MetroPCS Deal
By Serena Saitto, Cornelius Rahn and Matthew Campbell on May 09, 2012
Deutsche Telekom AG (DTE) is discussing a merger of its T-Mobile USA unit with MetroPCS Communications Inc. (PCS) (PCS) as it reviews options for the customer-losing business, according to people familiar with the matter.
Deutsche Telekom is considering a stock-swap transaction that would give the German company control over the combined entity, which would be publicly listed, said two of the people, who declined to be identified because the talks are private. Other options include an initial public offering or an outright sale of T-Mobile USA, the people said, adding that Deutsche Telekom is also in talks with other companies. MetroPCS shares jumped 14 percent in New York trading.
Europes second-biggest phone company, whose $39 billion sale of T-Mobile USA to AT&T Inc. (T) (T) failed last year due to regulatory resistance, wants to bolster the businesss ability to gain size and customers, the people said. Following the deals collapse in December, T-Mobile USA cut jobs and stepped up investments in faster networks as it tries to stop a flight of contract subscribers to rivals.
The thing they lack is size and it would be easier to be part of something larger, said Alexandre Iatrides, an analyst at Oddo & Cie. in Paris who recommends investors reduce their holdings in Bonn, Germany-based Deutsche Telekom.
Sprints Role
Combining with a smaller player isnt really the option they prefer, but they dont really have a choice after the disposal plan failed, he said, adding that Sprint Nextel Corp. (S) (S) could be a viable, alternative partner.
MetroPCS shares climbed 94 cents to $7.50 yesterday. Leap Wireless International Inc. (LEAP) (LEAP), MetroPCSs main rival in the pay- as-you-go wireless market, rose 12 percent to $5.76. The two companies often trade in tandem, and Leap may be expected to benefit from consolidation in the industry. Deutsche Telekom shares, meanwhile, dropped 0.2 percent to 8.54 euros earlier in Frankfurt.
Sprint discussed buying T-Mobile USA last year, people familiar with the talks said at the time. It also abandoned a plan to buy MetroPCS, people with knowledge of those discussions said in February. Sprint is on the lookout for deals that would help it pose a more credible threat to bigger competitors Verizon Wireless and AT&T.
Andreas Fuchs, a Deutsche Telekom spokesman, declined to comment, as did MetroPCS representative Drew Crowell and Sprints Bill White.
Previous Deal
MetroPCS had been the front-runner to buy assets from AT&T and T-Mobile when the two companies sought to complete their deal, people familiar with the matter said last year.
The current negotiations with Deutsche Telekom had been complicated by a 24 percent decline (PCS) by MetroPCS shares this year before yesterday, and the talks still might fail, the person said. The stock drop, partly wiped out by yesterdays gain, may require the companies to adjust the ratio between their respective contributions.
MetroPCS is also in discussions with other potential partners, the people said.
T-Mobile USAs 33 million clients make it the fourth- largest wireless provider in the country, behind Verizon Wireless, AT&T and Sprint.
Deutsche Telekoms wireless U.S. business lost 1.65 million contract customers last year, or 6.2 percent of its base of highest-paying users. The divisions bet on devices running Google Inc. (GOOG) (GOOG)s Android system failed to stem customer losses as Verizon Wireless, AT&T and Sprint lured away users with Apple Inc. (AAPL) (AAPL)s iPhone.
Customer Gains
Verizon Wireless added 501,000 contract customers in the first quarter, while AT&T netted 187,000. Sprint added users for its main brand, though it lost a total of 192,000 contract users for all its services. MetroPCS, based in Richardson, Texas, reported a quarterly gain of 132,000 new customers.
Deutsche Telekom, which is scheduled to deliver results before markets open in Frankfurt, is projected to report the loss of 470,000 T-Mobile USA contract customers in the quarter ended March 31, according to the average estimate of seven analysts compiled by Bloomberg.
In March, T-Mobile USA said it was cutting 1,900 jobs and closing seven of its 24 call centers to adjust costs to a shrinking customer base. Deutsche Telekom has said it is looking at other strategic options, including a sale of T-Mobiles U.S. tower network.
Nonsupportive Stance
AT&T and Deutsche Telekom both agreed to abandon the T- Mobile USA deal, which would have created the largest U.S. mobile-phone operator. Deutsche Telekom cited unwillingness by the U.S. Justice Department and the Federal Communications Commission to change their nonsupportive stance even after the companies proposed changes to the size and structure of the transaction. The Justice Department had sued to block the deal.
U.S. regulatory agencies likely would approve a combination of T-Mobile and MetroPCS, said Jeffrey Silva, a Washington-based analyst with Medley Global Advisors LLC.
Such a transaction is probably the precisely the kind of merger the Obama administration would welcome as a limited counterbalance to wireless juggernauts Verizon and AT&T, Silva said in an e-mail.
When the Justice Department sued to block AT&T from buying T-Mobile last year, it said in a complaint that the smaller company is an aggressive competitor that helps constrain prices across the wireless marketplace.
Verizon Wireless and AT&T serve about 60 percent of U.S. wireless subscribers, according to data compiled by Bloomberg. T-Mobile accounts for 9.5 percent, and MetroPCS has 2.7 percent.