Confirmed Merger Talks Between T-Mobile and MetroPCS Create Issues

CNBC and Dow Jones have confirmed that Deutsche Telekom has confirmed talks are underway with MetroPCS Communications. Inc. (NYSE: PCS). MetroPCS shares are up about 19% at $13.77 so far today. What investors need to know is that the German telecom outfit has also said that no deal is certain and no contracts have been signed. It also appears as though the aim is to merger T-Mobile into MetroPCS and that T-Mobile would be the majority shareholder of the company.

What investors need to be concerned with here is that in some cases this could end up being similar to a reverse merger whereby T-Mobile would be the surviving company and the “PCS” stock as it exists today would suddenly become a much larger company than the $5 billion market cap it has after today’s rally.

We have also been critical here that any acquirer has now allowed MetroPCS shares to rally literally more than 100% from the lows over the summer. Another issue is that MetroPCS was supposed to be an acquisition target of Sprint Nextel Corporation (NYSE: S) but the Sprint board of directors reportedly blocked that.

Sprint shares are down 5.5% at $4.89 on the chances that MetroPCS will be gobbled up by another player besides it. In reality, Sprint needs to focus on its own continued recovery. Leap Wireless International Inc. (NASDAQ: LEAP), the direct competitor of MetroPCS and a failed merger partner with MetroPCS, is seeing its shares up 13% at $7.92.

JON C. OGG