Life after a failed merger can be tough, especially if it happens twice in quick time. When it was first conceived, the merger between AT&T and T-Mobile seemed like a match made in heaven; AT&T would get the bandwidth it needed to continue to build an unreliable and mismanaged network, T-Mobile days of languishing as the country’s fourth largest carrier would be over, and T-Mobile’s parent company Deutsche Telekom would finally be able to extricate itself from the chaotic American mobile market.
As it turned out, AT&T was eventually forced to abandon the merger and questions remained - what’s next for T-Mobile? Earlier this month, T-Mobile did the unexpected – barely months after getting out of a failed merger, it announced its intention to acquire prepaid regional wireless carrier MetroPCS.
The deal, if it goes through, could have significant implications for America’s wireless industry as it marries the country’s fourth and sixth largest carriers (by revenue); a move Deutsche Telekom hopes will allow better competition with the market’s larger players. However, the proposed acquisition hasn’t gone well with MetroPCS shareholders who’ve filed a lawsuit claiming they’re being cheated through a “drastically undervalued” merger.
On its part, Deutsche Telekom remains confident that the merger should be completed in the second quarter of 2013.
As my fellow blogger Matt Klassen mentioned, there’s no doubt that both T-Mobile and MetroPCS struggling. Though both companies are profitable, their smartphone catalogues are found wanting (no iPhone), their network technologies are substandard (no LTE), and both are hemorrhaging customers at an alarming rate.
As per the proposed agreement, which will see stocks switch hands between companies, MetroPCS shareholders will get $1.5 billion in cash and a 26 percent stake in the combined company, while Deutsche Telekom will own the other 74 percent of the company (and interesting move for the German company that publicly stated its desire to leave the American wireless market during the AT&T acquisition fiasco).
The shareholders are now crying foul that executives and directors of MetroPCS will get special payments for unvested stock options not available to ordinary shareholders.
“[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 complaint says.
The MetroPCS shareholders are seeking relief for the companies’ alleged breach of fiduciary duty, abuse of control, gross mismanagement, unjust enrichment, and corporate waste. Although it’s early days yet, the lawsuit may well set the ground for larger legal battles ahead of the proposed T-Mobile MetroPCS merger.