Deutsche Telekom AG sweetened the debt terms of an October proposal to merge its T-Mobile USA unit with MetroPCS Communications Inc. to placate shareholders.

Under what it called a “best and final offer,” Deutsche Telekom cut the amount of debt it’s imposing on the combined company by $3.8 billion, according to a statement from the Bonn- based company yesterday. The carrier also lowered the interest rate it plans to charge on the loan by half a percentage point.

The transaction has faced opposition from investor-advisory firms and some of MetroPCS’s largest shareholders, who were concerned the new company would be loaded with too much debt, threatening to scuttle Deutsche Telekom’s second attempt to sell T-Mobile in as many years. MetroPCS agreed to delay a shareholder vote to April 24 on the new terms, which would cut the loans to $11.2 billion from $15 billion.

“This puts the new company under less pressure and gives them more strategic flexibility,” said Jonathan Chaplin, an analyst with New Street Research LLP in New York. With less of a debt burden, the new company can more easily afford to make network investments and acquire more wireless airwaves, he said.

Deutsche Telekom also extended the lockup period during which it’s barred from publicly selling shares in the combined company. The time frame will now be 18 months, up from six. That may reassure investors that the German company doesn’t plan to cut and run.

Vote Delayed

MetroPCS shareholders were scheduled to convene tomorrow to vote on the deal. The two-week delay will give investors time to evaluate the new proposal, the Richardson, Texas-based company said in a statement.

The merger would combine the fourth- and fifth-largest U.S. wireless carriers, creating a stronger competitor to market leaders Verizon Wireless and AT&T Inc. Deutsche Telekom agreed in October to the original deal, which gives MetroPCS investors $1.5 billion of cash and a 26 percent stake in a new entity. That part of the transaction isn’t changing, Deutsche Telekom said in its statement.

“This improved offer underlines Deutsche Telekom’s commitment to establishing a new, stronger competitor in the U.S. mobile communications market that will offer customers a greater selection of attractively priced products and services on a best-in-class wireless network,” the company said. It reiterated a prediction that the merger will generate cost savings of $6 billion to $7 billion.

Interest Rate

Deutsche Telekom shares climbed 0.3 percent to 8.64 euros at 9:09 a.m. on the Frankfurt exchange. MetroPCS shares rose 3.3 percent to $11.56 in New York yesterday after news of an improved bid first surfaced.

P. Schoenfeld Asset Management, the MetroPCS investor that led the fight against the original deal, said in a statement that it welcomed the move and will review the proposal.

“PSAM is pleased that Deutsche Telekom — in response to strong opposition to the deal from shareholders — has taken steps to improve the terms,” the New York-based firm said.

Deutsche Telekom had previously sought to charge an interest rate of about 7 percent — an excessively high amount, PSAM had argued.

Support for the original deal faltered last month when Institutional Shareholder Services Inc. and Glass, Lewis & Co. – – two influential investor-advisory firms — criticized the terms of the merger. Paulson & Co., MetroPCS’s largest owner, also opposed the offer, though No. 2 shareholder Madison Dearborn Partners LLC was in favor of it.

AT&T Misfire

By improving the terms, Deutsche Telekom is seeking to avoid a replay of T-Mobile’s failed deal in 2011, when AT&T walked away from a takeover after facing regulatory scrutiny. For Deutsche Telekom Chief Executive Officer Rene Obermann, the MetroPCS merger would be the largest acquisition since the German company entered the U.S. market more than a decade ago.

T-Mobile is struggling with contract-subscriber losses and has fallen behind rivals in embracing long-term evolution, or LTE, a faster network technology. To win back market share, T- Mobile CEO John Legere is touting its lower prices and a new installment-plan approach to buying phones.

On April 12, T-Mobile will begin offering Apple Inc.'s iPhone for the first time, becoming the last major U.S. carrier to get the device.

The combination of T-Mobile and MetroPCS would create a company with 42.3 million customers. The deal moved a step closer to completion on March 12, when both the Federal Communications Commission and the Justice Department approved the combination. The following week, the Committee on Foreign Investment in the U.S. approved the transaction.

The sweetened offer should help seal the deal, New Street Research’s Chaplin said.

“I think this is enough,” he said. “They reduced the debt by enough to make this a better deal for MetroPCS shareholders than remaining independent.”

(Source: Bloomberg)