T-Mobile-MetroPCS merger sinks stocks

T-Mobile and MetroPCS have shared to the media their plans of a merger to take on their bigger competitor. Reports suggest that their plans have already been approved and that they are now in the process of ironing out things. These companies are the fourth and the fifth largest wireless carriers in the United States, respectively.

The merger is designed to pose better competition against AT&T, Verizon and Sprint and it seems logical to think there would soon be a bigger company taking on the key players in the industry. Analysts, however, do not see it like that.

Kevin Smithen at Macquarie Capital wasn’t so optimistic about the merger saying both companies have their own shares of great losses. “You can’t make soup with two leaky pots,” Smithen said. T-Mobile is still experiencing a persistent loss of customers and the deal is definitely not a cure.

Shares of MetroPCS went down 10 percent in morning trading but were able to recover after Bloomberg reported Sprint Nextel Corp was planning to post a counterbid against T-Mobile’s offer. The plunge may not have been the company’s first but it’s a sign that the merger isn’t as good as what ordinary people would think.

T-Mobile USA’s parent company, Deutsche Telekom AG, has its shares plunged up to 3.7 percent in European trading. This just shows that while both companies are looking forward to gaining better momentum in the global market, they might suffer a considerable loss before they could make a rebound.

Under the merger, T-Mobile USA and MetroPCS would be combined into one company. The latter’s shareholders would get $1.5 billion in cash plus 26% of the shares. While many would think there would be a change of brand, there isn’t. T-Mobile would still be the name to appear in the U.S. market, albeit the two consumer brands will operate separately. Presumably, there would still be a T-Mobile and MetroPCS phone line-ups.

The proposal for the said merger is still pending approval and the deal might be closed in the first half of 2013. But until then, it would be put under close scrutiny.

[source: BusinessWeek]