Shares in Sprint Nextel have soared on talk that Deutsche Telekom may make an offer to buy the company. But the high cost of any deal, combined with the technological challenges, suggest the German company may be better off considering a joint venture rather than a bid, our commentary team say.

The high price of staying competitive in the U.S. market makes the decision on Sprint a tough call for Deutsche Telekom, analysts say.

And here’s a round-up of deal-related stories from Tuesday’s press:

* The U.S. government is talking to Citigroup Inc about how to sell the roughly one-third stake the government acquired as part of its bailout of the bank, Bloomberg said. Reuters story here.

* India’s largest power producer, state-run NTPC Ltd, is looking to spend up to $1 billion to acquire a South African coal mining firm, the Mint newspaper said. Reuters story here.

* Brazilian billionaire Andre Esteves plans an initial public offering for his BTG Pactual investment bank in 2010, Valor Economico newspaper said, without citing a source for the information.

* RSA, the UK general insurance group, is looking at large acquisitions potentially worth about 600 million pounds ($994 million), that might need to be supported with a rights issue, the Financial Times said.

For the latest Reuters deals news, click here.

Sprint Nextel’s stock soared 11 percent before the market opened on a British newspaper report that T Mobile parent Deutsche Telekom had appointed Deutsche Bank to advise on a possible run at Sprint, valuing the U.S. cellular carrier at $11 billion.

Sprint certainly is a logical target for any company looking to boost its position in the very busy U.S. mobile market. It announced a large goodwill write-off in February 2008

And Deutsche Telekom is on the make. It signed a deal with France Telecom to combine the companies’ British mobile phone businesses — T-Mobile UK and Orange — last week.

A Sprint deal would make T-Mobile the top U.S. mobile company, but it would cost a bundle … and that’s just the up-front funding. Combining Sprint’s CDMA and T Mobile’s GSM technologies would take technological wizardry no less daunting than the magic the German carrier might have to employ in Washington to ensure a deal clears antitrust and other regulatory hurdles.

So while the hype could last through the day, any near-term excitement about a mega mobile merger could well be tempered by the time your next phone bill arrives.

(By Sarah Young, Acquisitions Monthly)

The proposed £7bn merger of Orange and T-Mobile in the UK may be too much for Vodafone to bear, pushing it into a tie-up with Hutchison Whampoa’s mobile businesses 3, not just in the UK but also in Italy.

Indeed, earlier this year, Vodafone merged its operations with those of 3 in Australia.

If Orange and T-Mobile ink a deal by October, as they say they will, and the competition watchdogs approves it, 3 will find itself as the UK’s fourth largest mobile operator with just 8% of the market. Vodafone will be pushed back into third place – something one of the world’s largest mobile phone operators could find difficult to stomach in its home market.

Its third place position will make it hungrier for 3 than Telefonica’s O2, which currently holds the top mobile spot in the UK. Sources said that Vodafone was more committed than O2 to buying T-Mobile UK.

Hutchison is also considering a possible merger of its 3 Italia operation, but has ruled out a deal with Italian number three player Wind. Perhaps Vodafone, the number two player in Italy, could also look to do a deal with 3 in that country’s market.

Despite the fact that losses at its 3G mobile operations have narrowed, questions continue to be asked about Hutchison’s commitment to the mobile industry in the long term. The Hong Kong-based group will need to look carefully at its options but it’s clear that in the UK a successful Orange and T-Mobile merger will leave 3 looking more vulnerable than ever.

Deutsche Telekom and France Telecom have confirmed they are talking to combine their UK mobile operations in a JV. And Abu Dhabi’s ATIC has offered to buy Chartered Semiconductor — another sign that M&A is picking up after Kraft/Cadbury?

For all Reuters deals news, click here.

Just one story we picked up from other media today: Chinese machinery maker Tengzhong is still working to close a deal with General Motors Co to buy the U.S. automaker’s Hummer brand after a regulatory setback, Chinese media reported.

Sprint 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.