T-mobile Us, Inc. · NASDAQ:TMUS
T-mobile Us — Metropcs Communications — Merger or Acquisition (March 2013)
45 slides from T-mobile Us's merger presentation, Mar 18, 2013
Slide 1: Analysis of Proposed Combination with T-Mobile USA & Standalone Alternative
MetroPCS Communications, Inc. Analysis of Proposed Combination with T-Mobile USA, Inc. & Standalone Alternative March 18, 2013 0
Slide 2: Executive Summary
MetroPCS Communications, Inc. Executive Summary 1
Slide 3: Executive Summary
Executive Summary Executive Summary The standalone alternative yields superior value to PCS shareholders if PCS shareholders vote AGAINST the proposed combination of PCS and T-Mobile – IT IS A VIABLE AND ATTRACTIVE ALTERNATIVE THAT PCS SHAREHOLDERS MUST CONSIDER The proposed equity split allocating
Slide 4: Executive Summary (cont.)
Executive Summary (cont.) Executive Summary The deal is irresponsibly and inefficiently structured (cont.) A pervasive lack of transparency places PCS shareholders at a significant disadvantage in objectively evaluating the merits of the transaction Among many other issues detailed in our analysis,
Slide 5: Transaction Overview
MetroPCS Communications, Inc. Transaction Overview 4
Slide 6: Proposed Capital Structure & PCS Stock Performance
Proposed Capital Structure & PCS Stock Performance Transaction Overview Cumulative Book Value Multiple (1) DT Notes (Permanent Notes) $7,500.0 120.0% Proposed Capital Structure ($ in millions, except per share amounts) Historical PCS Trading Performance Since Announcement MetroPCS (NYSE:PCS) Current
Slide 7: MetroPCS Communications, Inc.
MetroPCS Communications, Inc. Key Transaction Issues 6
Slide 8: 1.1 Interest Expense on DT Notes is Significantly Above Market
1.1 Interest Expense on DT Notes is Significantly Above Market Key Transaction Issues The estimated average interest rate of 7.72% on the $15.0 billion of DT Notes is significantly above market Interest rate on the DT Notes is based on yield of comparable indices and securities plus additional sprea
Slide 9: Excessive Interest Rates Further Leverage the Combined Company
Excessive Interest Rates Further Leverage the Combined Company Key Transaction Issues Cumulative Cumulative Book Value Multiple (1) Market Value Multiple (1) Proposed Combined Company Capital Structure with Market Value ($ in millions, except per share amounts) Proposed Capital Structure with Market
Slide 10: 1.2 Capital Structure Should Include Secured Debt
1.2 Capital Structure Should Include Secured Debt Key Transaction Issues Including secured debt would maximize shareholder value and result in lower interest expense and a lower make-whole premium Assuming 40% secured debt for the Combined Company, interest expense would be reduced by $254 million p
Slide 11: 1.3 Combination is Over-Levered
1.3 Combination is Over-Levered Key Transaction Issues Market % of Value Total Cap Total Combined Company Debt $25,054.6 73.9% Pro Forma Price per Share (before split) $6.23 d h d b f l The proposed capital structure at 3.6x to 3.9x net debt / 2013E EBITDA is over-levered relative to peers Pro 26 1%
Slide 12: 1.4 Make-Whole Premium is Significant and Burdensome
1.4 Make-Whole Premium is Significant and Burdensome Key Transaction Issues Outsized refinancing premium destroys Combined Company’s ability to significantly lower its cost of capital and dilutes its attractiveness to potential strategic buyers Refinancing of DT Notes prior to the expiration of the
Slide 13: 1.5 Hidden Transfer of Value to DT is Enormous
1.5 Hidden Transfer of Value to DT is Enormous Key Transaction Issues Even without reducing overall leverage, including (i) an appropriate amount of less expensive secured debt and (ii) market interest rate on DT Notes, has significant benefits Reduction of interest expense of approximately $370 mil
Slide 14: 1.6 Optimized and Sustainable Capital Structure will Benefit all Shareholders
1.6 Optimized and Sustainable Capital Structure will Benefit all Shareholders Key Transaction Issues Reducing the amount of the DT Notes will benefit all Combined Company shareholders, including DT Key Benefits to Combined Company: Equity Value will Increase Substantially Value DT Operational and Fi
Slide 15: Reducing DT Notes by $4.0 Billion is Accretive to DT
Reducing DT Notes by $4.0 Billion is Accretive to DT Key Transaction Issues Reducing total debt by $4.0 billion results in value accretion for all Combined Company shareholders, including DT Reducing DT Notes by $4.0 billion Benefits all Combined Company Shareholders ($ in millions) Current Adjustme
Slide 16: 2. Negotiated Equity Split has Multiple Flaws and Inconsistencies
2. Negotiated Equity Split has Multiple Flaws and Inconsistencies Key Transaction Issues $1.5 billion spectrum deduction PCS-Related Flaws and Inconsistencies DT-Related Flaws and Inconsistencies Above market terms on DT Notes Using debt does not 1 8 Not appropriate or consistent (see page 16) 2012A
Slide 17: Spectrum Deduction by PCS is NOT Appropriate or Consistent
Spectrum Deduction by PCS is NOT Appropriate or Consistent Key Transaction Issues PCS’s proxy statement provides that a standalone PCS would be required to purchase $1.5 billion of additional spectrum Including the assumed spectrum purchase as part of a DCF valuation for a standalone PCS may be acce
Slide 18: Equity Split Does Not Reflect 2012 Actual EBITDA Contribution
Equity Split Does Not Reflect 2012 Actual EBITDA Contribution Key Transaction Issues Key adjustments include: 1) PCS 2012 Actual EBITDA of $1,530 million(1) beat estimates by 15% 2) T-Mobile Actual EBITDA of $4,886 million was 1% lower than estimates 3) DT Notes adjusted to market value to appropria
Slide 19: Equity Split Does Not Reflect 2013 Estimated EBITDA Contribution
Equity Split Does Not Reflect 2013 Estimated EBITDA Contribution Key Transaction Issues Key adjustments include: 1) DT Notes adjusted to market value to appropriately reflect capital structure (hidden transfer of value) 2) PCS balance sheet updated based on December 31, 2012 figures Combined Combine
Slide 20: 3. Skewed Risk / Reward For PCS Shareholders vs. DT
3. Skewed Risk / Reward For PCS Shareholders vs. DT Key Transaction Issues Heading Heading Upside Case Downside Case $15.0 billion of DT Notes $1.8 Billion of DT Notes premium 74% of equity (greater than implied split $15.0 billion of DT Notes Above market interest on DT Notes Royalty fees for use o
Slide 21: PCS Shareholders Exposed to Significant Downside while DT has Substantial Protection
PCS Shareholders Exposed to Significant Downside while DT has Substantial Protection Key Transaction Issues Illustrative Reduction to 2013E EBITDA 0% 10% 20% 30% Illustrative Recovery at Various 2013E EBITDA Downside Scenarios ($ in millions, expect per share amounts) Implied Combined Company EBITDA
Slide 22: 4. PCS Deserves Higher Multiple than T-Mobile
4. PCS Deserves Higher Multiple than T-Mobile Key Transaction Issues PCS deserves a higher EBITDA multiple than T-Mobile Superior recent financial performance – Since 2010, PCS has outperformed T-Mobile in several key financial metrics: Service Revenue EBITDA EBITDA Margin EBITDA - Capex ARPU Subscr
Slide 23: 5. Absence of Control Premium to PCS Shareholders Despite Clear Change of Control
5. Absence of Control Premium to PCS Shareholders Despite Clear Change of Control Key Transaction Issues PCS SHAREHOLDERS ARE NOT RECEIVING ANY CONTROL PREMIUM DESPITE DT OBTAINING ABSOLUTE CONTROL – the proposed combination is not a merger of equals, but an unequivocal sale of control to DT (despit
Slide 24: 6. Flawed Process Not Designed to Maximize PCS Shareholder Value
6. Flawed Process Not Designed to Maximize PCS Shareholder Value Key Transaction Issues Despite DT clearly seeking to obtain control of PCS since February 2012, PCS did not initiate a recent and coordinated process designed to obtain the highest value for all PCS shareholders Ad hoc discussions with
Slide 25: PCS's Strong Performance Not Reflected in Deal Terms
PCS’s Strong Performance Not Reflected in Deal Terms Key Transaction Issues Q3 When PCS had an earnings miss in Q1 2012, deal terms moved dramatically in DT’s favor When PCS reported record performance in Q2 2012, deal term changes were nominal T-Mobile’s poor performance had no material effect on d
Slide 26: 7. Conflicts, Lack of Transparency and Additional Concerns
7. Conflicts, Lack of Transparency and Additional Concerns Key Transaction Issues Based on the information PCS and DT have provided PCS shareholders there is significant evidence of At the same time as advocating the purported potential value of the Combined Company’s shares to PCS shareholders, DT
Slide 27: 7. Conflicts, Lack of Transparency and Additional Concerns (cont.)
7. Conflicts, Lack of Transparency and Additional Concerns (cont.) Key Transaction Issues PCS attempted to use a stale record date for the PCS shareholder meeting to vote on the proposed T-Mobile transaction and have vigorously fought to avoid to include year-end financials for PCS, depriving shareh
Slide 28: 7. Conflicts, Lack of Transparency and Additional Concerns (cont.)
7. Conflicts, Lack of Transparency and Additional Concerns (cont.) Key Transaction Issues DT has structured the transaction to ensure that the Combined Company is unable to refinance the $15 billion of off-market intercompany debt owed to DT – note the following from page 48 of PCS’s proxy statement
Slide 29: 7. Conflicts, Lack of Transparency and Additional Concerns (cont.)
7. Conflicts, Lack of Transparency and Additional Concerns (cont.) Key Transaction Issues Why has PCS not provided any clarity regarding the $1.5 billion PCS spectrum investment despite the significant impact this investment had on PCS’s financial advisors’ valuation of PCS? Why has PCS not provided
Slide 30: Our Analysis is Supported by the Analyst Community
Our Analysis is Supported by the Analyst Community Key Transaction Issues “It is only rational to vote against the deal: We arrive at an expected value of $12 if shareholders block the deal vs. $8-9 if they approve. We believe that it is highly likely that TMOUS would increase their offer and likely
Slide 31: Standalone Alternative
MetroPCS Communications, Inc. Standalone Alternative 30
Slide 32: A Standalone Company is a Viable and Attractive Alternative
A Standalone Company is a Viable and Attractive Alternative Standalone Alternative Status quo (that is, voting down the proposed deal), even without a revised offer from DT or another buyer surfacing, still yields superior value to PCS shareholders – with or without the $1.5 billion spectrum purchas
Slide 33: Management's Forecast in Proxy Appears Conservative and Out of Date
Management's Forecast in Proxy Appears Conservative and Out of Date Standalone Alternative Given 2012 actual results, PCS projections should have been updated to reflect the change in performance and strategy 2012 EBITDA and Management’s Commentary Historical and Projected EBITDA ($mm) $1,530 $1,556
Slide 34: PSAM's Forecasts for PCS are Consistent with Management's Forecasts
PSAM’s Forecasts for PCS are Consistent with Management’s Forecasts Standalone Alternative PCS has demonstrated an impressive conversion of 26% subscribers to Long-Term Evolution services (“LTE”) by the end of 2012 We expect average revenue per user (“ARPU”) for LTE to be at least $50 We believe our
Slide 35: Spectrum Portfolio and MVNO Alternative Provides Important Downside Protection
Spectrum Portfolio and MVNO Alternative Provides Important Downside Protection Standalone Alternative The historical purchase price for PCS spectrum is over $3.7 billion The value of spectrum has only increased over the past 15 years The purchase prices are reported by FCC and are fact-based Th l f
Slide 36: Appendix
MetroPCS Communications, Inc. Appendix 35
Slide 37: Analysts Agree that PCS is Worth More Standalone than when Combined with T-Mobile
Analysts Agree that PCS is Worth More Standalone than when Combined with T-Mobile Appendix Combined Company PCS Standalone Date Firm Price Target Date Firm Price Target 3/11/13 BofA / Merrill $9.00 3/1/13 RBC $11.00 3/7/13 Newstreet $8.50 3/7/13 Newstreet $10.50 3/4/13 UBS $8.00 2/27/13 Wells Fargo
Slide 38: Transaction Results in Significant Reduction in Public Float
Transaction Results in Significant Reduction in Public Float Appendix While DT is benefiting from significantly increased financial flexibility and liquidity associated with the reverse merger into PCS public stock, PCS shareholder liquidity (as measured by public float) will substantially decline P
Slide 39: Benefits of Reducing Amount of Unsecured Debt, Market Interest Rates and Total Leverage
Benefits of Reducing Amount of Unsecured Debt, Market Interest Rates and Total Leverage Appendix A A l A A l Capital Structure with Secured Debt, Market Interest Rates and 3.0x Leverage Capital Structure with Secured Debt Average Annual Interest Interest Cumulative Facility Amount Rate Expense Lever
Slide 40: Profitability per Subscriber Comparison
Profitability per Subscriber Comparison Appendix Profitability per Subscriber Comparison T-Mobile T-Mobile Metro PCS Monthly 4G Post Paid ARPU $40.63 $42.00 $56.75 Less: Cash Cost Per User (CCU) (20.38) (19.89) (29.49) Gross Cash Flow Per Subscriber $20.25 $22.11 $27.26 h Churn 3.4% 3.9% 2.3% Averag
Slide 41: PSAM Forecast Assumptions for PCS
PSAM Forecast Assumptions for PCS Appendix 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 2012E 2013E 2014E 2015E 2016E 2017E Retail Subscribers (000s) 9,149.2 9,346.7 9,478.3 9,292.3 8,980.0 8,886.7 8,886.7 9,036.7 9,336.7 9,636.7 9,936.7 10,236.7 Average 9,080.0 9,160.2 9,388.5 9,381.6 9,131.2 8,880.8 9,195.5 8,96
Slide 42: PSAM Income Statement Forecast for PCS
PSAM Income Statement Forecast for PCS Appendix 2013E 2014E 2015E 2016E 2017E $4,556.9 $4,808.3 $5,110.7 $5,427.0 $5,757.7 Fiscal Year PSAM Income Statement Forecast for PCS ($ in millions) Service Revenues Equipment Revenues 725.4 653.9 659.6 665.5 671.6 Total Revenues $5,282.3 $5,462.2 $5,770.3 $6
Slide 43: Comparable Company Trading Analysis
Comparable Company Trading Analysis Appendix 7.2x 7.1x 6.5x 5.4x 5 3x EV / 2012A EBITDA Mean: 5.8x 5.3x 4.7x 4.6x 3.9x Median: 5.4x Verizon Sprint AT&T Leap NTELOS Atlantic Tele- Network US Cellular MetroPCS EV / 2013E EBITDA (3) (1) (2) (standalone) 6.5x 6.3x 6.3x 6.2x 5.2x 5.1x 5.0x 4.3x Mean: 5.8
Slide 44: Comparable Wireless Transactions
Comparable Wireless Transactions Appendix (EV / NFY EBITDA) Represents transactions for which EV/EBITDA multiples were publically available Comparable Wireless Transactions ($ in millions) (8.3 x 6.9 x 7.4 x 6.8 x 7.9 x EV / NFY EBITDA) Mean: 7.1x (1) Median: 7 1 5.4 x 7.1x Target: Acquirer: Transac
Slide 45: Recent Notable Spectrum Transactions
Recent Notable Spectrum Transactions Appendix $0.68 $0.63 $7.52 700 / 800 MHz Band ($ per MHz-Pop) AWS / PCS Band (1.7 / 2.1 GHz) ($ per MHz-Pop) $0.54 $0.55 $1 28 $ 1.54 $4.21 FCC Auction 63 (Sep-2006) Verizon / SpectrumCo (Dec-2011) Verizon / Leap (Dec-2011) Verizon / AT&T (Jan-2013) 1.28 FCC Auct
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