DealZone

Handicapping prospects of a Sprint Nextel deal

May 6, 2008

sprint.jpgSprint Nextel Corp appears to be considering several deals, including a possible spinoff of its Nextel business, a WiMax joint venture with Clearwire Corp, or a takeover by Deutsche Telekom.

With the company scheduled to report earnings on May 12, investors hope something — anything — will happen to shake up the struggling wireless company. But analysts aren’t so sure that any of those transactions would create value for shareholders, especially considering the company’s less-than-stellar acquisition track record and its struggles with subscriber losses and network problems.

“While restructuring is a possibility we see significant hurdles to completing value added transactions,” said Morgan Stanley analyst Simon Flannery. “There are multiple impediments to value creating transactions including technological, regulatory, and financial barriers.”

Spinning off Nextel would unravel the $35 billion acquisition of that company in 2005. At the time of the merger, the combined company had a market capitalization of $70 billion, compared with just $23 billion in market cap today. CEO Dan Hesse said in April he was not actively looking for a buyer for the Nextel assets, but would evaluate any offers. But would it be feasible?

Goldman Sachs analysts had this to say in a research report:

A deeper dive highlights the complexity: (1) credit markets are effectively still closed, and uncertainty
around cash flow projections at Nextel further limits funding capabilities;
(2) Legal risks are extremely high – involving FCC challenges around the
Nextel spectrum swap, as well as probably bondholder and shareholder
litigation; (3) untangling the Sprint Nextel integration process would be a
huge challenge, with Sprint executives recently highlighting the difficulty.”

Cowen & Co. analyst Tom Watts was more upbeat: “(T)he likelihood of a transaction is high. We expect at least one of Sprint’s three potential deals to be announced over the next few weeks, potentially as early as May 12.”

Watts said the most likely scenario would be a combination with Clearwire, but the other two options are also possible this year, with better odds for a Nextel sale than a Deutsche Telekom tie-up.

Comments
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Having worked in the wireless industry for over 22 years, I had to take a pause when Sprint acquired Nextel and wonder what were they thinking. People would ask me questions like, how are they going to integrate their technology and my answer was “they’re not” at least not this generation of technology.
That all being said, splitting the company up would be a huge error in judgement in my opinion (remember AT&T, now owned by one of their spun off companies?). I think they need to focus on what’s next for Nextel and get the fire burning there quickly. It may be as simple as a migration plan away from IDEN to a 3G CDMA using 1X technology for push to talk, or if that doesn’t net the desired result… work a development deal with qualcomm to tune the process up to where it works like IDEN. Seems like they should have been doing this long ago, IDEN was basically the second digital technology deployed in the us following AT&T’s now defunct TDMA system and has been long in the tooth for years now.
Regardless, this will be interesting to see just how bad the Sprint upper management is willing to go to protect their “Phony Bologna jobs”… (quote from a Mel Brooks Film)…

Posted by Robert Elmore | Report as abusive
 

” I think they need to focus on what’s next for Nextel and get the fire burning there quickly. It may be as simple as a migration plan away from IDEN to a 3G CDMA using 1X technology for push to talk, or if that doesn’t net the desired result… work a development deal with qualcomm to tune the process up to where it works like IDEN. Seems like they should have been doing this long ago”

This technology you ask for has been in developmental stages for over 4 years and is now being soft launched in a few markets. It not only works like iDEN, it also can interface with iDEN. Sprint can only launch the technology in Rev A markets.

Posted by Jerry Joseph | Report as abusive
 

Sprint overcharged my small (US) company for over $50,000.00. We caught them doing it and now they refuse to refund the over-payments. You can read the full story at http://www.sprint-really-sucks.com

 

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