Shareholders Fight MetroPCS-T-Mobile Merger

DALLAS (CN) - MetroPCS and T-Mobile, the nation's fourth- and fifth-largest wireless phone service providers, are cheating shareholders in their "drastically undervalued" merger, shareholders say in two derivative complaints.

Metro PCS shareholders sued Dallas-based MetroPCS, T-Mobile USA, its German parent Deutsche Telekom, and MetroPCS CEO Roger Linquist and board members in Dallas County Court.

The carriers announced the merger on Oct. 3, touting the creation of "the leading value carrier in the U.S. wireless marketplace, which will deliver an enhanced customer experience through a wider selection of affordable products and services, deeper network coverage and a clear-cut technology path to one common LTE network."

T-Mobile is the fourth-largest mobile phone service provider in the country, with 33.2 million customers.

MetroPCS is fifth, with 9.3 million customers for its no-annual-contract and unlimited service for a flat rate.

Under the merger, MetroPCS will declare a 1-for-2 share reverse stock split and make a $1.5 billion cash payment to shareholders, or $4.09 per share. It will then issue 74 percent of common stock to Deutsche Telekom and the plaintiff shareholders will own the remaining 26 percent of the combined company, valuing their shares at $12.48 per share, according to the complaint.

"The process leading to the proposed acquisition was tainted by conflicts, tilted towards T-Mobile and driven entirely by the board and company management, who together control 15.4 percent of PCS' outstanding stock and seek liquidity for their illiquid holdings," the complaints claims.

"[Metro]PCS' officers and directors will receive millions of dollars in special payments - not being made to ordinary shareholders - for currently unvested stock options, performance units and restricted shares, all of which shall, upon the merger's closing, become fully vested and exercisable."

The plaintiffs say senior management will also get millions of dollars in change-of-control payments.

They claim the board of directors is "conflicted and serving its own financial interests."

Shareholders say the $12.48 per share valuation is too low, that shares traded as high as $18.69 per share in May 2011 and that a stock analyst has set an $18.00 per share price target on the stock.

"Based on market estimates, the combined company is expected to have 2012 pro forma revenues of approximately $24.8 billion and cost synergies of $6-7 billion," the complaint states. "The deal is expected to result in accelerated financial growth with estimated five-year [compound annual growth rate] for revenues, [earnings before interest, taxes, depreciation and amortization] and free cash flow in the range of three percent to five percent, seven percent to ten percent and 15 percent to 20 percent, respectively."

The shareholders say the deal was designed to ensure the sale of the company to just one buyer, T-Mobile, by agreeing to provisions that would discourage competing bids.

The provisions include a no-solicitation clause that prevented MetroPCS from communicating or providing confidential information to other bidders except under "extremely limited circumstances."

The board also agreed to a matching rights provision that allows T-Mobile to match any superior bid and agreed to a $150 million termination fee if the merger with T-Mobile is dropped for a better offer.

The plaintiffs seek injunctive and declaratory relief for derivative and class claims of breach of fiduciary duty, abuse of control, gross mismanagement, unjust enrichment and corporate waste. They are represented by Willie Briscoe of Dallas.

Follow @davejourno

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