As Deutsche Telekom AG (DTE) nears a contested shareholder vote over the proposed merger between its T-Mobile USA unit and MetroPCS Communications Inc. (PCS), it has an advantage: it gets to count the ballots as they come in.
MetroPCS shareholders are sending in their proxy documents in advance of an April 12 meeting, and Deutsche Telekom can monitor the results in real time, giving it an early warning if the measure is going to fail. The German carrier is considering an option to delay the final tally if victory appears unattainable, providing a chance to improve its bid, people familiar with the matter said.
At issue is whether the two companies can combine to gain the scale to compete against the mobile-phone industry’s largest players, such as AT&T Inc. and Verizon Wireless. While Deutsche Telekom’s access to voting numbers is common in mergers, it’s unusual for a company to exploit that information so late in the process, said Jim Kahan, a senior adviser with TAP Advisors LLC, a boutique investment-banking firm.
“They are more in the driver’s seat than the people who oppose the deal,” Kahan said in a phone interview from New York. “The whole process has been a little strange.”
Shareholders seeking to encourage Deutsche Telekom to make a better offer can still put pressure on the company by withholding their votes until the last minute, even if they plan to approve the deal, said Roy Behren, a MetroPCS shareholder who co-manages the $4.7 billion Merger Fund (MERFX) at Westchester Capital in Valhalla, New York.
“I don’t know if I’d call it a game of chicken, but as often happens with a proxy fight, you see people wait until the last minute,” said Behren, whose firm filed a lawsuit last month against MetroPCS, seeking a court order from a federal judge to delay the vote.
Shareholders who choose to abstain completely from the election will count as votes against the proposal, according to MetroPCS filings, adding to Deutsche Telekom’s challenge in gauging the outcome. Investors have until 11:59 p.m. New York time tomorrow to vote by Internet or telephone or can attend the meeting to vote in person. They can also change their votes if they have already cast ballots.
Deutsche Telekom is still optimistic its proposal can win shareholders’ approval without a sweetened offer, said the people familiar with the matter, who asked not to be named because the deliberations are private.
Deutsche Telekom shares rose 1.1 percent to 8.53 euros at 4:14 p.m. in Frankfurt, valuing the phone company at 36.9 billion euros ($48 billion). MetroPCS gained 1 percent to $11.30 in New York, implying an enterprise value for the joint company of $31.4 billion.
The vote is being managed by proxy solicitor MacKenzie Partners Inc. The firm gives MetroPCS a running tally, and the mobile-phone carrier passes that information on to Deutsche Telekom under a good-faith agreement between the companies. A MetroPCS representative declined to comment further on the state of the transaction, as did a Deutsche Telekom official.
“This is sensational,” Heinz Steffen, an analyst at Fairesearch GmbH in Kronberg, Germany, said of the early indications of the vote outcome. “Even so, I’m still not sure they’ll get through with it.”
A delay would push back the vote about two weeks, since the U.S. Securities and Exchange Commission would require the filing of a new proxy statement, the people said. The April 12 meeting is currently scheduled for 8 a.m. local time in Richardson, Texas.
Deutsche Telekom, Germany’s biggest phone company, would own almost three-quarters of the new business after making a $1.5 billion cash payment to MetroPCS shareholders. The German company also would loan $15 billion to the entity. The resulting level of debt -- and the relatively high, 7 percent projected interest rate -- would be a heavy burden, according to P. Schoenfeld Asset Management and other opponents.
“I’m surprised Deutsche Telekom hasn’t been more pragmatic and sweetened the deal,” said Kahan, a former strategist at AT&T. The company could probably address shareholders’ concerns with small adjustments to the debt or interest rates, he said.
“They’ve come a long way and they aren’t going to let this deal fail,” he said.
Advisory firms Institutional Shareholder Services and Glass, Lewis & Co. came out against the transaction, while Egan- Jones Proxy Services was in favor.
The proposal would unify the fourth- and fifth-largest U.S. wireless carriers, and it represents a key part of Bonn-based Deutsche Telekom’s effort to stage a U.S. comeback. In the wake of a failed 2011 takeover by AT&T, T-Mobile has ranked a distant No. 4 struggling against Verizon Wireless, AT&T and Sprint Nextel Corp. (S)
T-Mobile lost 2.1 million contract subscribers last year and doesn’t expect to reverse that trend until next year. The company said last week that its cheaper subscriptions and plans to offer Apple Inc.’s iPhone improved its customers’ loyalty. Monthly subscriber losses for the T-Mobile brand in the first quarter fell to 199,000, down from 515,000 in the fourth quarter.
“Deutsche Telekom needs to decide if a modified transaction is in the best interest of everyone, including itself,” said Behren, who plans to vote against the transaction.