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MetroPCS Merger May Melt Down

Just as rumblings from some Clearwire¬†investors unhappy with Sprint Nextel's (NYSE: S  ) buyout offer may put that proposal in jeopardy, another telecom merger is feeling shareholder heat.

The agreement MetroPCS (NASDAQ: TMUS  ) made last October to merge with Deutsche Telekom's T-Mobile USA unit is coming under increased investor scrutiny, and it doesn't look pretty to some of the largest investors.

That deal would give Deutsche Telekom 74% of the new company and would dole out $1.5 billion in cash to MetroPCS shareholders.

MetroPCS' biggest shareholder, hedge fund Paulson, holds 8.7% of the wireless operator's shares. In an emailed statement late last week, Paulson told Bloomberg a combined MetroPCS/T-Mobile company would have "too much debt, the interest rate on Deutsche Telekom's debt financing is too high, and the exchange ratio is too low for PCS stockholders."

Peter Schoenfeld, chairman of P. Schoenfeld Asset Management, which owns 2% of MetroPCS shares, told Bloomberg the new company would have to pay an interest rate as high as 8% on $15 billion in debt.

Schoenfeld said he wants to get shareholders to demand better terms or kill the deal and keep MetroPCS as a separate entity.

New Street Research analyst Jonathan Chaplin told Bloomberg, "I suspect Schoenfeld will not be alone. ... PCS shareholders are worse off for this deal. And the debt is so large that if things don't go according to plan, the equity value could evaporate quickly."

MetroPCS responded on Feb. 7 to a critical letter from Schoenfeld by releasing this statement: "The MetroPCS Board of Directors and management team have been and remain committed to acting in the best interests of all MetroPCS stockholders. The Board believes that the proposed combination with T-Mobile is in the best interests of MetroPCS and all MetroPCS stockholders and continues to recommend that MetroPCS stockholders vote in favor of the proposed combination."

The next day Deutsche Telekom reaffirmed its commitment to a united MetroPCS and T-Mobile with this statement:

"Deutsche Telekom remains committed to the terms of the merger of T-Mobile USA and MetroPCS announced October 3, 2012, and will enforce its rights under the definitive agreement with MetroPCS."

Still, the Paulson statement said, "It may be more prudent for PCS to remain independent and explore other higher value alternatives."

Alternative purchasers could include Sprint, which had talked of making a play for MetroPCS at least twice in the recent past, or another previous suitor, DISH Network, which seems unlikely to pull off its counteroffer to Sprint's attempt to buy Clearwire.

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