It's official, Deutsche Telekom and MetroPCS have come to terms and the German giant's T-Mobile USA unit will merge with smaller rival MetroPCS. The combined AWS spectrum will give T-MobileUSA's LTE plans a nice boost in major metro areas where MetroPCS is strong.
The deal is structured so as to give T-Mobile USA a US listing and some separation from its parent. So MetroPCS will declare a 1 for two reverse stock split, pay its shareholders $1.5B in cash, and issue a pile of stock to DT giving it a 74% stake. DT will roll the existing intercompany debt into $15B of senior unsecured notes, provide a $500M credit facility, and a $5.5B backstop commitment for third party transactions. Basically, it's complicated so we'll wait and see what it looks like when the dust clears.
The two are projecting $6-7B NPV of cost synergies, with additional revenue synergies on tap. That will amount to run-rate annual cost synergies of $1.2-1.5B. They are targeting EBITDA margins of 34-36% after five years, and will operate under the T-Mobile brand. That's the spreadsheet view anyway, what it will look like on the ground will be an unfolding story for 2013.
That is, assuming the FCC and DOJ don't get in the way. Nobody thinks they will of course, as even after combining they will still be #4 in subscribers at 42.5M. Regulators can't very well complain they are too big or have too much spectrum and might destroy everyone in their path competitively this time. Look for AT&T to find a way to jump up and down barefoot on a few sour grapes when the time comes though.
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