By Sinead Carew and Harro Ten Wolde
NEW YORK/FRANKFURT, April 10 (Reuters) - Deutsche Telekom sweetened its terms on Wednesday for the proposedmerger between T-Mobile USA and MetroPCS Communications by reducing the combined company's debt due to pressure fromactivists and proxy advisory firms.
Shares of MetroPCS rose 2 percent in late trade afterDeutsche Telekom, the parent of T-Mobile USA, said it wouldreduce the debt burden for the combined company by $3.8 billionand lower the interest rate on the debt by 50 basis points.
The debt reduction, excluding the interest-rate change,improves the deal's valuation by about $2.67 a share forMetroPCS shareholders.
Deutsche Telekom has not provided a total per-sharevaluation for the deal because T-Mobile USA is not public.
T-Mobile USA, the No. 4 U.S. mobile provider, and itssmaller rival MetroPCS want to pool their spectrum resources andnetworks in order to compete better with bigger rivals such asVerizon Wireless , AT&T Inc and Sprint Nextel.
As part of the sweetened offer, Deutsche Telekom alsoexpanded the lock-up period - when it is prohibited frompublicly selling shares in the company - by 12 months to 18months after the deal closes.
The new offer will reduce debt to $11.2 billion from aproposed $15 billion for the new company.
The German operator did not change the equity structure ofthe new company, which will be 74 percent owned by DeutscheTelekom and 26 percent owned by MetroPCS shareholders.
The new terms will postpone a special meeting of MetroPCSshareholders that was scheduled for April 12, according to aDeutsche Telekom source with knowledge of the situation.
MetroPCS said late Wednesday that it has rescheduled thespecial meeting of MetroPCS shareholders to April 24 to vote onmatters relating to the proposed merger.
LISTENING TO SHAREHOLDERS
The revision came after two big shareholders said they wouldvote against the deal. The biggest U.S. proxy advisory firmsInstitutional Shareholder Services (ISS) and Glass Lewis hadboth recommended that shareholders vote against the deal.
P. Schoenfeld Asset Management LP, which says it owns about2.5 percent of MetroPCS, is leading a proxy battle against thedeal. Paulson & Co, which has a 9.9 percent stake, has said itwill vote against the deal.
The activists have complained that the combined companywould have too heavy a debt load and the equity split impliestoo low a valuation for MetroPCS shares.
P. Schoenfeld Asset Management said in a statement that itwas pleased that the deal terms had been changed.
"We are reviewing and considering the details of DeutscheTelekom's revised offer with our advisors at this time and willprovide MetroPCS shareholders our view regarding the new termsin short order," P. Schoenfeld Asset Management said.
Paulson & Co representatives did not have any immediatecomment.
After the proxy firms warned shareholders against the deal,analysts and investors had said shareholders would likely voteagainst the deal unless the company changed the terms.
Even Deutsche Telekom shareholders told Reuters on Wednesdaythat they would want the company to give MetroPCS a better offerrather than face the failure of the proposed deal.
Westchester Capital Management, whose funds own about 4percent of MetroPCS shares, filed a lawsuit in federal courtlast week seeking to halt the planned shareholder vote because it contended that the company did not properly explain the deal.
Only Madison Dearborn, an owner of about 8.3 percent ofMetroPCS shares, and smaller proxy advisory firm Egan Jones hadpublicly announced support for a vote in favor of the deal.
WEIGHING IMPACT OF LESS DEBT
Under the terms of the reverse merger announced in October,Deutsche Telekom would end up with a 74 percent stake in thecombined company, and MetroPCS would declare a 1-for-2 reversestock split and pay $1.5 billion in cash to its shareholders.
If the deal collapsed, it would be a huge blow for DeutscheTelekom, since in 2011, it had to abandon its plan to sellT-Mobile USA to AT&T for $39 billion because of opposition fromregulators.
Robin Bienenstock, an analyst at Sanford C. Bernstein inLondon, has calculated that every reduction of loans by $500million would cost Deutsche Telekom 0.034 of a euro per share,while reducing the interest on the loan would result in a hit ofabout 0.01 of a euro for every 25 basis points.
Based on Bienenstock's calculation, the sweetened deal wouldreduce the price of Deutsche Telekom shares by about 0.29 of aeuro. Deutsche Telekom shares closed on Wednesday at 8.61 euros,up 2 percent.
MetroPCS shares rose more than 2 percent to $11.84 inextended-hours trading after closing at $11.56, up 3.3 percentin the regular New York Stock Exchange session.
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