Shareholders file suit over proposed cell company merger

Baton Rouge stock watchers may be interested to learn that shareholders of cellular service provider MetroPCS have filed suit to block its acquisition by its larger competitor T-Mobile USA. Even though the dust has barely settled on the announcement of the proposed merger, and regulatory approval is not anticipated until the early part of 2013, the shareholders have been quick to raise allegations of conflicts of interest among the smaller company’s board of directors.

Asserting that the terms of the deal undervalue the smaller company, its shareholders have filed a host of claims against the company and its board of directors, as well as the larger cellular service company and its parent firm, Deutsche Telekom. The business law action includes claims of breach of fiduciary duty and unjust enrichment among other claims related to accusations of corporate mismanagement.

Under the terms of the merger proposal, the parent firm of the larger cell company would own 74 percent of shares in the combined new company. Shareholders of the smaller cell company would receive a 26 percent share of the new company along with a $1.5 billion cash payment.

The shareholders’ complaint centers primarily on special payments and incentives that would be received by board members of the smaller company but would not be shared by stock holders. They claim that the board’s decision to accept the merger offer was unduly influenced by a desire to cash in illiquid stock holdings and by the promise of stock options and other financial perks that would vest upon execution of the merger.

Representatives of the larger company say that the merger is driven by the need to acquire more bandwidth in order to survive against competitors with larger shares of the communications spectrum. A spokesperson for the smaller company says that it intends to aggressively defend against the shareholders’ charges. If neither side makes any settlement concessions, the merger may be on hold for quite some time.

Source: CNET, “MetroPCS shareholders sue over T-Mobile merger,” Dara Kerr, Oct. 15, 2012