This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Wireless Providers Surge on MetroPCS, T-Mobile Merger Report

Stocks in this article: PCS LEAP S VZ T

NEW YORK ( TheStreet) -- On the heels of a stock slump after it missed first quarter earnings and saw subscriber losses, MetroPCS (PCS) is again the subject of merger speculation as struggling telecoms surge on the prospect of industry consolidation.

Bloomberg reports that Deutsche Telekom is considering merging its U.S.-based unit T-Mobile USA with MetroPCS. The report comes just months after T-Mobile's attempted merger with AT&T (T) was blocked by the Department of Justice on antitrust concerns.

It's not the first time MetroPCS has been mentioned in M&A reports. In late February, the company was close to unveiling a merger with Sprint (S) -- another struggling wireless carrier -- until a deal fell apart at the last hour. Now expectations that sector laggards will consolidate have some telecoms surging.

According to Bloomberg, Deutsche Telekom is considering a stock-swap of its T-Mobile unit with MetroPCS that would give the German telecom giant control over the combined entity. Those reports cite unnamed sources, who also note that Europe's second largest phone company could sell or IPO its Richardson, Texas-based T-Mobile unit.

Already, Deutsche Telekom is looking to sell T-Mobile assets such as cellular towers in a move to bolster its balance sheet. Meanwhile, MetroPCS was considered a key piece of T-Mobile's attempted $39 billion merger with AT&T, because it was a likely acquirer of divested assets that would have been recommended by antitrust regulators.

MetroPCS shares surged nearly 20% to $7.72 on reports of a potential merger. Still shares in MetroPCS are off over 11% year-to-date and nearly 60% in the last 12 months on the prospect of subscriber losses. Leap Wireless shares also rose nearly 20% to $6.04 signaling investor expectations that it could become the target of strategic interest, while Sprint rose over 3%.

Leap they haven't: all three companies' shares have lost over 50% in the last year.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Recent earnings at T-Mobile, Sprint, MetroPCS, and Leap Wireless (LEAP) signal that smaller carriers and even Verizon (VZ) and AT&T, the top two U.S. wireless providers, are struggling to benefit from a surge in smartphone sales led by Apple's (APPL) iPhone.

"AT&T and Verizon are the only two companies in the U.S. wireless industry that will earn enough to cover their cost of capital," wrote Moody's in a Feb. 13 note that highlighted a Sprint and MetroPCS tie-up as a possibility among scenarios of needed consolidation within the telecom sector.

"Investors are already walking away, making it harder for the carriers to attract capital to keep pace," added Moody's.

In attempting to buy MetroPCS in what could have been a $8 billion deal, Sprint was likely to use its low-priced stock to fund the deal because of limited access to debt markets. Analysts noted that a deal would likely have diluted Sprint's stock by 50% at the time, while bringing in much needed cash. "Investors are already being asked to fund a ~$15bn commitment to Apple in order to sustain postpaid market share," noted Nomura analyst Mike McCormack in February.

Still, even after Sprint's failed MetroPCS merger attempt, analysts expected that consolidation was likely in the user and service growth starved wireless industry, with many highlighting continued strategic interest in MetroPCS and Leap Wireless. "With or without a Sprint deal, these companies remain viable targets for larger carriers," wrote Bernstein Research analyst Craig Moffett in a February note to clients.

Currently, Sprint is struggling to build out and revamp a national wireless network in a project called Network Vision that may help it compete with industry leaders Verizon and AT&T in handling expected increases in smartphone data loads.

Recently, Sprint cut ties with a struggling 4G service build called LightSquared. The venture is owned by hedge fund Harbinger Capital Management and is facing the prospect of bankruptcy. Analysts such as Moffett of Bernstein also see the success of Sprint's project as a key to its survival.

Deutsche Telekom's interest in a T-Mobile merger with MetroPCS and Sprint's failed attempt at M&A are all signals of why consolidation efforts are a key for the industry in 2012, after AT&T spent most of 2011 battling with regulators.

For more on the wireless industry, see why AT&T is still hungry for more spectrum and how a tower deal twists industry consolidation. For more on M&A, see 5 deal ready stocks loved by hedge funds.

-- Written by Antoine Gara in New York

Readers Also Like:

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs