A prominent organization that advises major shareholders in public companies how they should vote in corporate elections has told MetroPCS owners to vote against the T-Mobile merger.
Institutional Shareholder Services wrote to shareholders yesterday, saying that seeing their company merge with T-Mobile would not be in their best interests. According to The Wall Street Journal, which obtained a copy of the note, ISS was especially concerned with the way the market has responded since the deal was announced.
"In light of the negative market response to this transaction (shares are down 14.4 percent since announcement), the lower equity split than justified by the contribution of PCS to the combined entity, and the potential for PCS to continue to thrive as a standalone company, shareholders should vote against this transaction," ISS wrote in its note to investors.
That was good news for Paulson & Co., an investment firm and the largest MetroPCS shareholder, with 9.9 percent of the company's outstanding shares. In its own statement on the matter yesterday, Paulson & Co. said T-Mobile parent company Deutsche Telekom is the only party actually benefiting from the transaction:
We have participated in thousands of merger transactions and have cast our support in favor of 99 percent of them. This is the only one in the recent past that we are voting against. It is not surprising that Deutsche Telekom is so eager to close this deal as they get the lion's share of the benefits. As a shareholder of a public company, we have the right to vote against a transaction that we think severely undervalues our stake. If Deutsche Telekom wants to get MetroPCS shareholder support, we suggest Deutsche Telekom significantly reduce the debt they are taking back and/or dramatically increase MetroPCS's pro forma share of the combined company.
Earlier this week, federal regulators approved the merger proposal. If MetroPCS shareholders vote in favor of the deal, they would receive $1.5 billion in cash and 26 percent stake in the combined company. The remaining 74 percent would be owned by T-Mobile parent company Deutsche Telekom.
ISS, which doesn't actually vote and only advises shareholders on how they should make a determination, argues that a 26 percent stake isn't enough for MetroPCS shareholders, saying that they should fight for more share of the combined company.
T-Mobile has consistently said the merger will go through, despite concerns from MetroPCS shareholders. We'll find out soon -- the vote takes place April 12.