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Deutsche Telekom in Talks to Merge T-Mobile With MetroPCS

Deutsche Telekom AG (DTE) said it’s in talks with MetroPCS Communications Inc. (PCS) to combine their U.S. wireless businesses, giving T-Mobile USA the greater scale it needs to compete with Verizon Wireless and AT&T Inc. (T)

The plan includes putting the U.S. operators into one company in which Deutsche Telekom will hold the majority of shares, the Bonn-based company said in a statement today, confirming a Bloomberg report. Deutsche Telekom’s supervisory board is scheduled to meet in Bonn tomorrow to approve the transaction, people with knowledge of the matter said, asking not to be identified because the plan is confidential.

MetroPCS shares jumped as much as 26 percent to the highest level in 14 months in New York. Deutsche Telekom has been considering a deal with MetroPCS to create a U.S. operator that would be publicly listed, people familiar told Bloomberg in May. T-Mobile USA, with 33.2 million customers at the end of June, or a third of each of market leaders Verizon Wireless and AT&T, is seeking to stem client losses it has suffered partly because it doesn’t have the rights to sell Apple Inc. (AAPL)’s iPhone.

The transaction will involve multiple steps including a stock swap, said one of the people.

“The potential synergies are so high, and this would resolve the huge issue that is T-Mobile USA with a real long- term solution,” said Alexandre Iatrides, an analyst at Oddo & Cie in Paris who has a neutral recommendation on Deutsche Telekom stock.

‘Not Certain’

Shares of MetroPCS were up 18 percent at $13.57 at the close in New York, giving the company a market value of $4.9 billion. Deutsche Telekom closed 1.3 percent higher at 9.74 euros on the Frankfurt exchange after surging as much as 4.4 percent. The former German phone monopoly has a market capitalization of 42.1 billion euros ($54.4 billion). Sprint Nextel Corp. (S) slumped 5.4 percent to $4.90 in New York.

“The talks are at a stage where significant issues have not yet been finalized, contracts have not yet been signed and the conclusion of the transaction is still not certain,” Deutsche Telekom said in its statement. “The board of management and supervisory board of Deutsche Telekom have therefore not yet taken the resolutions necessary for such a transaction.”

MetroPCS also confirmed in a statement today that it is in discussions with Deutsche Telekom over a combination with T- Mobile.

Prepaid Focus

T-Mobile USA and MetroPCS could generate cost savings worth $1.2 billion to $1.7 billion a year, Iatrides said. An official announcement may lift Deutsche Telekom’s share price by 1 euro, he predicts.

A combination with Richardson, Texas-based MetroPCS would give T-Mobile USA, with its headquarters in Bellevue, Washington, an additional 9.3 million prepaid customers.

AT&T failed to take over T-Mobile USA last year for $39 billion amid opposition by regulators. In the past two weeks, Deutsche Telekom named John Legere, the former chief executive officer of Global Crossing Ltd., to head the U.S. division and agreed to sell the rights to operate T-Mobile USA’s cellular towers for $2.4 billion.

A deal with MetroPCS would be the latest attempt by Deutsche Telekom Chief Executive Officer Rene Obermann to revive T-Mobile’s fortunes more than a decade after the German company entered the U.S. market. T-Mobile USA accounts for about 25 percent of Deutsche Telekom’s revenue as the parent struggles to return to growth in eastern European countries such as Greece.

T-Mobile USA, the fourth-largest U.S. carrier, has lost 2.76 million contract customers, or more than 10 percent of its subscriber base, in the eight quarters through June. The company has positioned itself as a more affordable alternative to Verizon Wireless, AT&T and Sprint Nextel.

To contact the reporters on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net; Aaron Kirchfeld in London at akirchfeld@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Jacqueline Simmons at jackiem@bloomberg.net; Nick Turner at nturner7@bloomberg.net

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