Proxy advisor Glass Lewis on Friday became the second firm to suggest that MetroPCS Communications Inc shareholders vote against its proposed merger with T-Mobile USA, adding pressure on Deutsche Telekom AG to offer a sweeter deal.
The advisory follows a recommendation by larger proxy firm ISS late on Wednesday night that shareholders should vote against the deal with T-Mobile USA, the U.S. business of Deutsche Telekom. A smaller advisory firm, Egan Jones, had recommended its clients vote in favor of the transaction.
Glass Lewis said in a report released late Thursday that the proposed transaction undervalues MetroPCS's contribution to the combined company, adding that it believes MetroPCS shareholders could likely realize additional value in the short term if the company remained independent.
Glass Lewis also said that if MetroPCS shareholders vote against the deal, they could potentially receive a better offer.
A MetroPCS spokesperson said in an e-mailed statement that the board remains committed to the deal and thinks it is in the best interest of stockholders.
Analysts said on Thursday that ISS siding with shareholder activists would likely force Deutsche Telekom to improve the terms of the deal. ISS had complained about the negative market response to the proposed deal, a lower valuation than justified and MetroPCS's potential to thrive as a standalone company.
Paulson & Co, the biggest MetroPCS shareholder, and P. Schoenfeld Asset Management, another big shareholder, had both committed to vote against the deal on concerns about the valuation and the amount of debt being assigned to the combined company.
Another major shareholder, Madison Dearborn, had put its support behind the deal.
T-Mobile USA, the No. 4 U.S. mobile provider, and its smaller rival MetroPCS want to pool their spectrum resources and networks in order to better compete with larger rivals Verizon Wireless , AT&T Inc and Sprint Nextel.
Under the terms of the reverse-merger announced in October, Deutsche Telekom would end up with a 74 percent stake in the combined company, and MetroPCS would declare a 1-for-2 reverse stock split and pay $1.5 billion in cash to its shareholders.
If the deal collapses, it would be a huge blow for Deutsche Telekom after being forced in 2011 to abandon its plan to sell T-Mobile USA to AT&T for $39 billion due to opposition by regulators.
The companies are soon expected to face tougher competition from an emboldened Sprint, which has agreed to sell 70 percent of its shares to Japan's SoftBank Corp for $20 billion.
P. Schoenfeld Asset Management LP, which says it owns about 2.5 percent of MetroPCS, is leading a proxy battle against the deal. Paulson & Co has a 9.9 percent stake, and Madison Dearborn owns about 8.3 percent of MetroPCS shares, according to the most recent public disclosures.
MetroPCS shares have slid more than 8 percent since Oct. 1, 2012, the day before reports emerged that MetroPCS and Deutsche Telekom were in talks.
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