Investors bet Thursday that T-Mobile USA will have to sweeten its proposal to merge with smaller cellphone carrier MetroPCS Communications Inc. after an influential shareholder advisory firm came out against the deal.
Shares of Dallas-based MetroPCS, the fifth-largest U.S. cellphone company, rose 42 cents, or 4 percent, to $10.95 in midday trading. It was the highest level for the stock since November, a month after the deal was announced.
Under the deal, T-Mobile USA's parent company, Deutsche Telekom AG of Germany, will hold a 74 percent stake in the combined company, while MetroPCS shareholders will own the remainder and receive a special dividend of $1.5 billion.
Institutional Shareholder Services recommended on Wednesday that shareholders vote against the deal when they meet on April 12, saying their share of the combined company is unfairly small, and MetroPCS would do fine as a standalone company.
Some large MetroPCS shareholders have opposed the deal for months. Analyst Kevin Smithen at Macquarie Capital said Thursday that the "no" recommendation from ISS clinches it.
"We now believe the deal will be voted down, absent modifications to current deal terms," Smithen said. He raised his price target on MetroPCS shares from $12 to $13.50.
In a rebuttal to ISS, MetroPCS said the deal offers "compelling benefits," and another shareholder advisory firm, Egan Jones, supports it.
"We strongly believe that ISS' report contains material flaws and reaches the wrong conclusion," MetroPCS said in a statement.
T-Mobile CEO John Legere said Tuesday that T-Mobile is outcompeting MetroPCS in the market for prepaid, no-contract service, and suggested that its shareholders should want own part of the winning company.
"I don't think their shareholders want any part of that deal voted down," he said.
The deal has all requisite regulatory approvals.