T-Mobile USA unveiled plans Wednesday to merge with smaller rival MetroPCS in a deal that boosts the fourth-largest US wireless carrier's effort to compete in the fast-growing American market.
A T-Mobile store in New York City. T-Mobile USA, the US wireless unit of Deutsche Telekom, will merge with US-based carrier MetroPCS in a cash and stock deal which will give the German firm a 74 percent stake in the company.
T-Mobile's parent Deutsche Telekom firm will hold a 74 percent stake in the new company, which will position itself as "the leading value carrier in the US wireless marketplace," a statement from the two firms said.
"This is a very exciting opportunity for us to be a much stronger player in the US, a very attractive market," said Deutsche Telekom chief executive Rene Obermann, calling the two brands "a great strategic fit.""
Obermann said the deal creates "a sustainable and financially viable national challenger in the US."
The new company will retain the T-Mobile name, and "will have the expanded scale, spectrum and financial resources to aggressively compete with the other national US wireless carriers," the joint statement said.
The deal groups T-Mobile's 33 million subscribers with the 9.3 million with MetroPCS, but the new firm will remain well behind US market leaders AT&T, Verizon Wireless and Sprint Nextel.
It combines the spectrum holdings to give the new firm greater network coverage in deploying new high-speed networks for smartphones known as LTE.
The tie-up is designed so that MetroPCS acquires T-Mobile, which will become a separate, publicly-traded company. Shareholders of Texas-based MetroPCS will get a cash payment of $1.5 billion, and the new stock will be distributed by giving 74 percent to Deutsche Telekom.
Deutsche Telekom will roll its intercompany loan into $15 billion in unsecured notes in the new company. The German telecom giant will also provide a $500 million unsecured credit line and a $5.5 billion backstop commitment.
The combined company is expected to have some 42.5 million subscribers and $24.8 billion of revenue.
Acquired at the height of the dotcom boom for 40 billion euros ($52 billion), T-Mobile USA has proved a drag on Deutsche Telekom's business.
AT&T abandoned a $39 billion effort to buy T-Mobile in December after US authorities moved to block the deal as anti-competitive.
John Legere, president and chief executive of T-Mobile, said the deal is a "logical and significant step" which allows for expansion of the carrier.
"We will be a stronger, value-focused competitor, providing customers with offerings such as our unlimited nationwide 4G Data and 'bring your own device' plans."
MetroPCS chairman and chief executive Roger Linquist said the combination "will allow MetroPCS to expand its no-contract offerings into new major metro areas and enhance our combined spectrum portfolio."
Upon completion of the deal, Legere will serve as president and CEO of the firm to be headquartered in Bellevue, Washington. The company will operate T-Mobile and MetroPCS as separate customer units.
MetroPCS, which jumped 17.8 percent on Tuesday in anticipation of the deal, fell 9.95 percent to close at $12.22. Deutsche Telekom shares added 0.11 percent to 9.75 euros on the Frankfurt exchange.
Independent telecom analyst Jeff Kagan said the deal helps both firms but fails to create a company with the heft to challenge the major three US carriers.
"A merger with AT&T would have made the most sense for T-Mobile," Kagan said. "Next best would have been a merger with Sprint. This T-Mobile merger with MetroPCS makes sense, and will be helpful, but just not as much."
Ulrich Rathe at Jefferies said the deal gives T-Mobile some valuable spectrum to help its expansion but that "the deal does not solve the main strategic issue faced by T-Mobile USA, lack of scale."
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