After confirming talks were taking place just yesterday, T-Mobile USA and MetroPCS have announced plans to merge their mobile networks. As part of the deal, MetroPCS shareholders will receive US$1.5 billion in cash and 26% ownership in merged company.

Although Deutsche Telekom will remain the largest shareholder with 74% of the company, significantly, its US subsidiary will be listed on the US stock exchange for the first time, making future reductions in its shareholding easier to manage.

The combined company will retain the T-Mobile name and combining their complementary radio spectrum will enable the company to offer to at least 20x20 MHz of LTE spectrum in many areas.

Based on analyst consensus estimates for 2012, the combined company is expected to have approximately 42.5 million subscribers, $24.8 billion of revenue, $6.3 billion of adjusted EBITDA, $4.2 billion of capital expenditures and $2.1 billion of free cash flow in 2012.

The transaction is structured as a recapitalization, in which MetroPCS will declare a 1 for 2 reverse stock split, make a cash payment of $1.5 billion to its shareholders and acquire all of T-Mobile's capital stock by issuing to Deutsche Telekom 74% of MetroPCS' common stock on a pro forma basis. Deutsche Telekom has also agreed to roll its existing intercompany debt into new $15 billion senior unsecured notes of the combined company, provide the combined company with a $500 million unsecured revolving credit facility and provide a $5.5 billion backstop commitment for certain MetroPCS third-party financing transactions.

Deutsche Telekom also noted that it may take the US$2.4 billion from the recently announced towers management deal with Crown Castle out of T-Mobile before the merger with MetroPCS is completed.

The transaction also triggers an impairment test which will lead to an impairment of goodwill and other assets in Deutsche Telekom's consolidated financial statements and a one-time non-cash write-down of between EUR 7 billion and EUR 8 billion.

Upon consummation of the transaction, the combined company is expected to continue trading on the New York Stock Exchange. Mr. Legere, currently President and Chief Executive Officer of T-Mobile, will serve as President and CEO of the new company and J. Braxton Carter, currently Chief Financial Officer and Vice Chairman of MetroPCS, will be the CFO.

The enlarged company will be looking to generate annual cost reductions of US$1.2-1.5 billion.

After closing, the company's headquarters will be in Bellevue, Washington and it will retain a significant presence in Dallas, Texas.

The transaction is expected to close in the first half of 2013.