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Posted by Dan Bieler on October 5, 2012
Deutsche Telekom is leading its daughter T-Mobile USA down the aisle for a second time in less than two years after the previous marriage attempt with AT&T collapsed in light of regulatory objections (see http://goo.gl/hgCrm). But T-Mobile USA will not leave the house altogether. Should the deal go through, Deutsche Telekom will own 74% in the NewCo. The NewCo will operate as one company with two brands, similar to how Everything Everywhere was run. MetroPCS Shareholders will own the remaining 26%.
The financial plan is that scale effects will translate into $6-7 billion of cost synergies from enhanced scale and scope. Deutsche Telekom pitches the deal as creating a wireless value leader in the non-contract (pre-paid) segment, with the goal of targeting a growing market segment. The ambition for the NewCo is to generate compound annual growth rates of 3-5% for revenues, 7-10% for EBITDA and 15-20% for free cash flow over the next five years.
The deal raises several issues for me:
T-Mobile USA – MetroPCS is a marriage of reason not passion. Deutsche Telekom’s second marriage attempt for its daughter looks a lot less glamorous than its first with AT&T. There certainly will not be billions of cash commitments flowing towards necessary investments in Deutsche Telekom’s domestic network infrastructure. The €7-8 billion goodwill impairment on T-Mobile USA that is expected to be booked for 4Q12 as part of the deal underlines the different context Deutsche Telekom is facing. The hope remains that T-Mobile USA will increasingly look after itself as Deutsche Telekom’s management attention needs to focus to its home market where many other challenges remain.
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