Sprint Nextel is in the early stages of evaluating a rival bid for MetroPCS Communications, with a view to countering an offer from Deutsche Telekom (DT), Bloomberg reports, citing three people familiar with the situation. The news agency reports that Sprint began reconsidering its position on a deal for MetroPCS before the T-Mobile merger announcement was made public and could decide as soon as next week on whether to lodge a competing offer. However, one issue that may hinder it is the breakup fee. Sources told Bloomberg that MetroPCS is obliged to pay DT USD150 million if it backs out of the current deal, whereas the reverse breakup fee for T-Mobile is USD250 million.
As reported by TeleGeography’s CommUpdate earlier this week, DT and Texas-based MetroPCS announced that they had signed a definitive agreement to combine T-Mobile USA and MetroPCS under the T-Mobile name. DT’s supervisory board and MetroPCS’ board of directors unanimously approved the transaction, which will be structured as a recapitalisation, in which MetroPCS will declare a one-for-two reverse stock split, make a cash payment of USD1.5 billion to its shareholders, and acquire all of T-Mobile’s capital stock by issuing to DT 74% of MetroPCS’ common stock on a pro forma basis.
Industry insiders widely acknowledge that the deal represents a missed consolidation opportunity for Sprint, which had been strongly linked with a move for the regional pre-paid specialist just days before the deal with DT was announced. A tie-up between rival CDMA operators Sprint and MetroPCS arguably represented a better fit in terms of network compatibility, but the carrier dragged its heels. Back in February this year Sprint pulled out of a USD8 billion deal to acquire MetroPCS, which was vetoed at the last minute by Sprint’s board, who reportedly balked at paying what would have been a 30% premium for the Texan firm.
The spectre of Sprint Nextel looms large over the T-Mobile/MetroPCS merger, a factor that T-Mobile CEO John Legere readily admits, with Sprint’s botched 2005 merger with iDEN operator Nextel representing a cautionary tale. CNET.com quotes Legere as saying: ‘This is not a Sprint/Nextel do-over. This deal is not about simply surviving. It’s about driving growth. When we add MetroPCS to the aggressive challenger strategy [of T-Mobile] it will accelerate things. This is not about filling in holes. The big difference between this merger and the Sprint-Nextel merger is that Nextel’s customers saw a loss of functionality. MetroPCS customers will see more functionality. This isn’t about smashing two networks together.’