Deutsche / MetroPCS - premium call Most investors know immediately what they are going to receive when one of their portfolio companies is bought out by a rival. Not so MetroPCS shareholders. The terms of Deutsche Telekom's purchase of PCS, announced on Wednesday, leave these poor souls little choice but to do some maths. The first bit is easy: PCS owners will receive a cheque for $4.09 per share. They will also get 26 per cent of the combined company, which will comprise PCS and Deutsche Telekom's T-Mobile USA unit. But what might that be worth? We know a big chunk of its value will take the form of debt: net debt contributed to the new company by Deutsche Telekom and PCS comes to $21.4bn. So far so good. How much equity value will the new company have? The companies will generate, between them, $6.3bn in earnings before taxes, depreciation and amortisation this year. An industry-average valuation of 6 times this amount would give the company a total value of $37.8bn. Back out the debt, and the equity is worth $16.4bn (Is your head beginning to hurt? Imagine how it would be throbbing if you actually held the shares). So PCS shareholders" slice of that equity is worth about $11.62 per old PCS share. Add that cash payment and they have received $15.70 in value, a 36 per cent premium to Monday's undisturbed price. Not bad. One small issue: the market does not see it that way. PCS shares were trading at $12.50 at midday on Wednesday, a 9 per cent premium (How is that headache now?). That implies - running those tiresome calculations in reverse - a below-average valuation multiple of 5 times. This is about what PCS was trading on before the deal and the impressive $6bn-$7bn worth of synergies that have been promised along with it. The new company's management already has something to prove to investors.