T-Mobile USA and MetroPCS to merge

T-Mobile USA and MetroPCS to merge

Deutsche Telekom has entered into an agreement to combine its US mobile subsidiary T-Mobile USA, with smaller rival MetroPCS.

The announcement follows confirmation yesterday that the two were engaged in talks and will create a company with approximately 12.9% wireless market share.

The deal will take the form of a reverse takeover, allowing Deutsche to achieve its long awaited goal of withdrawing from the US market. MetroPCS will receive $1.5 billion in cash and slowly increase its stake in the company starting from 26%, Deutsche will initially receive a 74% stake.

The combined entity will retain the T-Mobile name and have expanded scale, spectrum and financial resources to better compete with rival operators, according to Deutsche.

The German carrier said that the deal would create the leading value operator in the US wireless market, with a wider selection of affordable products and services. Both sides will combine their spectrum and LTE networks to provide greater coverage.

“We are extremely pleased to announce this transaction with MetroPCS, which enhances Deutsche Telekom’s position in the expanding US wireless market,” said René Obermann, CEO of Deutsche Telekom. “The T-Mobile and MetroPCS brands are a great strategic fit – both operationally and culturally. The new company will be the value leader in wireless with the scale, spectrum and financial and other resources to expand its geographic coverage, broaden choice among all types of customers and continue to innovate, especially around the next-generation LTE network.”

The combined entity is projected to have pro forma revenue of $24.8 billion, with 42.5 million subscribers and estimated synergies of $6 to $7 billion.

John Legere, who was recently appointed CEO of T-Mobile USA having previously led Global Crossing, will serve as president and CEO of the new company. it is likely that he had a big role in the deal due to his track record in dealing with mergers and acquisitons, according to analyst firm Infonetics Research. 

MetroPCS CFO, Braxton Carter, will take the same position at the combined entity.

T-Mobile and MetroPCs will still be operated as separate customer units with T-Mobile COO, Jim Ailing, leading that side of the business and Thomas Keys, president and COO of MetroPCS, leading the other side respectively.

Upon closing the deal the combined entity will be headquartered in Bellevue, Washington, while retaining a significant presence in Dallas, Texas. It will have an 11 man board, with numbers split between the companies by their stake holdings.

The transaction is subject to MetroPCS shareholder approval, and US regulatory approval. It is expected to close in the first half of 2013.

Analysts believe that US authorities are unlikely to oppose the deal.