T-Mobile, MetroPCS Deal Disappoints Investors

The reverse merger agreement between T-Mobile USA and MetroPCS Communications Inc. (NYSE: PCS) lit up the board yesterday before the terms were announced. Not so much today, though.

MetroPCS shares are down more than 8% today after rising to a new high of $14.51 yesterday. Soon-to-be former low-cost competitor Leap Wireless International Inc. (NASDAQ: LEAP) is down about 16%.

The issue is almost surely cash. T-Mobile USA parent Deutsche Telekom AG is paying $1.5 billion in cash and giving MetroPCS shareholders 26% of the company that will be called T-Mobile once the deal is approved. MetroPCS will also declare a 1-for-2 reverse stock split and issue 74% of the stock in the new company to Deutsche Telekom. Before the reverse split, MetroPCS shares are valued at about $4.10 based on today’s deal.

This is a fire-sale price, or what some observers have called a shotgun wedding. If there’s any advantage to either company, it’s certainly to T-Mobile.

And what about Leap? Well, the price of poker just went down. If this is the best deal that MetroPCS could get, Leap does not have a lot to offer investors.

MetroPCS shares are trading down about 9.6% at $12.28 in a 52-week range of $5.53 to $14.51.

Leap Wireless shares are trading down 16.5% at $6.34 in a 52-week range of $4.28 to $11.30.

Paul Ausick