MetroPCS shareholders look to block Deutsche Telekom acquisition due to undervaluation

With the absence of the AT&T-T-Mobile merger drama Deutsche Telekom — T-Mobile’s German-based parent company — is looking to provide us with some new juiciness with its latest agreement to purchase MetroPCS for $1.5 billion. Just as with the failed merger between the T-Mobile and AT&T, and just as with any high-profile acquisition, this one doesn’t come without a bit of drama of its own.

A lawsuit has been filed by MetroPCS shareholders against T-Mobile, Deutsche Telekom and MetroPCS for the apparent “drastic” undervaluation of the company in a deal that would give Deutsche Telekom majority stake for just $1.5 billion

The deal would include a 1-for-2 reverse stock split to bring that figure into play while delivering 74% of the stock to Deutsche Telekom. At a new valuation of $12.48 per share the group which will own the remaining 26% of MetroPCS feels the deal was designed favor T-Mobile and Deutsche Telekom far more heavily than it does MetroPCS.

I can’t disagree with that notion considering the company was once valued at close to $10 billion and has quickly grown to become the hottest new regional carrier in the land in just a few short years. Shareholders also note clauses which makes it nearly impossible for MetroPCS to entertain offers from other bidders.

If such clauses do exist Sprint is effectively boxed out of the picture as the company was rumored to have a renewed interest in buying MetroPCS after seeing what they agreed to be acquired for by Deutsche Telekom. While Sprint is dealing with getting acquired by another foreign company itself T-Mobile couldn’t beg for a better situation.

“[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,” said the plaintiffs of the lawsuit.

The plaintiffs also stated that the deal was driven mostly by company management and the board. They didn’t clarify whether this meant the common shareholders didn’t have interest in the deal at this price or didn’t have interest in the deal at all, but either way it’s clear they’re not happy with the way things have transpired.

This issue is a bit more complicated than antitrust concerns. Antitrust is more of a black and white area and it would appear Deutsche Telekom will have no problem clearing that hurdle. But when you start getting into these gray-spaced battles with your common shareholders things can get ugly rather quickly.

Being the company on the “acquired” end of the scale the MetroPCS shareholders fortunately do have a bit of say in this decision and we suspect they’ll vote on issues with every intent to block the sale. The goal is to get MetroPCS and Deutsche Telekom to rework the deal to either increase the valuation of the company to just under $20 per share or allow other parties to more easily bid on what appears to be a fire sale of sorts.

There’s a little more leeway between two parties when an internal battle stands to be more threatening to the deal than resistance from outsiders, but until this lawsuit develops into a heated case it’ll be tough to gauge whether or not stubbornness will outweigh sacrifice for either side. [Opposing Views]