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T-Mobile shares rise in NYSE debut

Signage for a T-Mobile store is pictured in downtown Los Angeles, California August 31, 2011. REUTERS/Fred Prouser
Signage for a T-Mobile store is pictured in downtown Los Angeles, California August 31, 2011. REUTERS/Fred Prouser

By Sinead Carew

NEW YORK (Reuters) - T-Mobile US Inc shares rose 6 percent in their debut on the New York Stock Exchange on Wednesday, after the company was created by the merger of MetroPCS Communications and Deutsche Telekom AG's U.S. unit T-Mobile USA.

Shares of what is now the fourth-largest U.S. wireless service provider were up 96 cents at $16.54 from an adjusted closing price of $15.58.

MetroPCS and T-Mobile USA, which had combined 2012 revenue of $24.8 billion, merged to pool their spectrum resources to compete better with bigger and smaller rivals.

"It's a good debut," said Hudson Square Research analyst Todd Rethemeier. "They both had good first-quarter results, so we think there's more room for upside." Rethemeier set a price target of $24 for the new stock.

However Wells Fargo analyst Jennifer Fritzsche was more cautious because T-Mobile has been losing customers for a long time. "T-Mobile US may have a difficult time turning the ship and bringing customers back to it as quickly as hoped," Fritzsche said in a research note.

T-Mobile US said the combined company ended the first quarter with about 43 million customers. This compared with roughly 55 million for third-ranked Sprint Nextel .

While the company plans to shut down the MetroPCS network eventually, it will keep both the T-Mobile brand and the MetroPCS brand, which is targeted at cost-conscious consumers who pay for calls in advance.

T-Mobile US Chief Executive John Legere said one of its first priorities will be to expand the MetroPCS brand outside of existing markets.

Because of the planned network shutdown, Chief Financial Officer Braxton Carter said most of his savings target of $6 billion to $7 billion from the deal will not involve traditional cost cutting such as layoffs. "There will definitely be some job reductions," Carter told Reuters, but added that "overall there will be job creation."

Deutsche Telekom has been struggling since 2011 to find a better path for T-Mobile USA after abandoning a sale of the company to No. 2 U.S. mobile provider AT&T Inc for $39 billion because of opposition from regulators.

The MetroPCS and T-Mobile USA merger was the first big deal to close in an ongoing flurry of consolidation efforts by U.S. telecom service providers.

Sprint agreed to sell 70 percent of its shares to Japan's SoftBank Corp <9984.T> for $20.1 billion in October but is now evaluating a counter bid from satellite TV provider Dish Network Corp . Shareholders may vote on the SoftBank deal on June 12.

Some analysts have speculated that T-Mobile US could be involved in other deals, such as a merger with Sprint, a tie-up with Dish or a purchase of smaller rival Leap Wireless International Inc .

Legere said he needs to focus on integration first.

"We will be listening to anybody that wants to talk to us, but right now we've got all the cards we need to play aggressively. So we're not out shopping," Legere said. "We're about executing and integrating. We've got a pretty good hand."

Wells Fargo's Fritzsche said "Sprint and T-Mobile's eventual marriage seems likely."

MetroPCS shareholders voted in favor of the deal on April 24 after Deutsche Telekom, under pressure from activist investors, sweetened the terms.

Under the agreement, Germany's Deutsche Telekom owns 74 percent of T-Mobile US. MetroPCS shareholders received about $1.5 billion in cash plus 26 percent of the combined company.

Other upcoming deals in the sector could include a Sprint buyout of the rest of Clearwire Corp , in which it already holds a majority stake. Sprint agreed to buy Clearwire for $2.97 per share but minority shareholders have been betting on a higher offer ahead of the May 21 vote on that deal.

Verizon Communications Inc , is also hoping to buy out Vodafone Group Plc's 45 percent stake in their Verizon Wireless venture and is preparing a $100 billion bid, according to sources familiar with the matter.

(Reporting by Sinead Carew; Editing by Lisa Von Ahn, Jeffrey Benkoe and Chris Reese)

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