Deutsche Telekom’s deal would leave MetroPCS investors with 26 percent of the new entity and $1.5 billion in cash. The ultimate value would hinge on how much synergy the two sides can realize.
Sprint may have an edge because it uses the same kind of network standard as MetroPCS: code division multiple access, or CDMA. T-Mobile relies on the global system for mobile communications, or GSM. All the companies are moving toward a new standard called long-term evolution, or LTE. Still, having different networks may cause headaches in the interim, making a Sprint-MetroPCS tie-up more palatable, Larsen said.
“A merger of these two would be able to attain synergies faster and have less network integration risk,” he said.
Sprint also is No. 3 in the industry, with more than 56 million customers at the end of June, while T-Mobile is a distant fourth. By absorbing MetroPCS’s 9.3 million customers, Sprint would close the gap with AT&T Inc. and Verizon Wireless. T-Mobile had 33 million customers at the end of June, so it would remain No. 4 after a merger with MetroPCS.
MetroPCS’s stock was unchanged at $12.69 at 10:32 a.m. in New York. The shares have advanced after Bloomberg News reported that Sprint was considering an offer, rebounding 18 percent from an intraday low of $10.96 yesterday. Sprint shares rose 3.1 percent to $5.25.
A challenge for either buyer would be hanging on to MetroPCS’s customers, who are prepaid users without long-term contracts. The carrier offers a pay-as-you-go service that appeals to young people and consumers with poor credit. That makes it a difficult business, Larsen said.
Another potential obstacle to a counteroffer is the breakup fee, said one of the people familiar with the discussions. MetroPCS would pay $150 million if it backs out of its current deal. The reverse breakup fee for T-Mobile is $250 million.
Deutsche Telekom is prepared for a counterbid from Sprint and would consider better terms if necessary, according to another person familiar with the matter.
When Sprint abandoned plans earlier this year to buy MetroPCS, the deal was expected to cost as much as $8 billion, including debt, the people familiar with the plan said. Since then, Sprint’s stock has outpaced shares of the acquisition target. MetroPCS currently has a market value of $4.61 billion, while Sprint is valued at about $15.3 billion.
The wireless industry has considered other ways to consolidate. Sprint has held talks with Deutsche Telekom about a deal with T-Mobile, and the German company has considered buying another prepaid carrier, Leap Wireless International Inc., people familiar with the discussions said. Greg Lund, a Leap spokesman, declined to comment on those talks.
AT&T had sought to buy T-Mobile for $39 billion last year, though it walked away from the deal after regulators objected. Soon after, Deutsche Telekom started talking with MetroPCS and other potential partners, people with knowledge of the negotiations said. The talks with MetroPCS accelerated after it reported better-than-expected second-quarter earnings on July 26, they said.
“Sprint might be in a position to offer PCS shareholders a more favorable deal,” Wells Fargo’s Fritzsche said.