SprintNextel sale a possibility?

[Fire14]

This article is in today's Business week web site.

Why $80 Billion for Sprint May Make Sense

A buyout of the troubled wireless company would be twice as large as any such deal so far. But it could offer tempting financial returns


Just a few years ago, a leveraged buyout of a company as big as Sprint Nextel (S) would have been unthinkable. The No. 3 wireless carrier has $41 billion in annual revenue and a market cap of $56 billion. Add in the cost of a 25% premium and the assumption of more than $23 billion in debt, and a Sprint Nextel buyout could be nearly twice as large as Texas Pacific's record $45 billion proposed buyout of power company TXU (TXU) (see BusinessWeek.com, 2/26/07, "How Green Green-Lighted the TXU Deal").

Yet at least one investment bank is taking the idea seriously. Goldman Sachs (GS) issued a report to a group of its clients on Mar. 21 examining the economics of such a deal. The report, by Jason Armstrong and other analysts, concluded that "the LBO economics are very favorable."

Goldman Sachs' Analysis
The report was conceptual; it didn't suggest that negotiations with potential buyers were under way. "But with the return profile better than many would expect, it's time to take an LBO scenario a bit more seriously and understand the return profile," the report said. Goldman analysts weren't available to discuss the report. Sprint Nextel didn't respond to a request for comment.

Goldman said an LBO could have an internal rate of return of 30%. The IRR is a benchmark that takes the future value of a deal into account. Goldman assumes that a buyer would sell Sprint's noncore assets, hold the line on spending, and limit debt to 6.5 times earnings before interest, taxes, depreciation, and amortization (EBITDA).

The chance of such a deal actually happening anytime soon is low, given its size, Goldman said. It estimates a buyout would cost $86 billion, which would move it into record territory—and then some. Goldman said it was unclear whether the debt markets would support such a transaction. Since the company is in the middle of a turnaround, it's not in shareholder interests to sell now and allow a future owner to reap a potential benefit, should there be one. And Goldman said a leveraged buyout might not leave enough cash to invest in the business. Sprint, which is having trouble holding onto customers, needs to make substantial investments in a number of areas (see BusinessWeek.com, 1/10/07, "Sprint's Subscriber Woes Deepen").

Private Equity Revolution
That a deal of such magnitude is being given serious consideration reflects the evolution of the private equity business. Until last year, Kohlberg Kravis Roberts' $31 billion buyout of RJR Nabisco in 1988 seemed insurmountable. But over the past year, a number of ever-larger buyouts have been struck, including the $36 billion deal for Equity Office Properties and then the $45 billion TXU purchase.

Now, as private equity firms have raised multibillion-dollar funds, a deal of $50 billion or even $100 billion looks possible. In December, shares of Home Depot (HD) surged as traders speculated that the retailer could go private. Such a deal would have cost well in excess of $100 billion (see BusinessWeek.com, 12/1/06, "Home Depot: A Big Orange Buyout?").

Sprint has been the subject of takeover talks for years, although the most likely buyers have been considered telecom companies and cable TV operators. Sprint has struggled since its $35 billion acquisition of Nextel in 2004 (see BusinessWeek.com, 2/28/07, "Sprint Nextel Rings Up Strong Profits"). Matt Michaelis, a vice-president with investment bank Jeff Williams & Co. in New York, said an LBO could make sense. "Obviously, it would be quite large, but it could be an attractive candidate for someone to take private," says Michaelis. If a buyer had a clear idea of how to fix the Sprint and Nextel integration issues, the prospects for a turnaround would be enticing. The company could support a lot of debt, which boosts the return of a buyout. And its wireless broadband spectrum could be an extremely valuable asset, if developed properly.

An Acquisition Scenario
One private equity expert said an LBO might be difficult to justify, though. Phillip Phan, a professor of management at the Lally School of Management & Technology at Rensselaer Polytechnic Institute, said the real value of the company is in its customers. An LBO would probably lead to sales of assets, which would limit subscriber growth. A strategic buyer such as Verizon (VZ) might make better use of the subscriber base and get more value from a deal.

Who would be in position to make such a bid? One possibility might be private equity giant Carlyle Group. The Washington-based firm is loaded with telecom veterans such as founder William Conway, a veteran of MCI. And Carlyle partner William Kennard, former chairman of the Federal Communications Commission, recently resigned from Sprint's board.

The talk of a buyout or acquisition stems from Sprint's weakened condition. It's having trouble with its business and financials, just as rivals' wireless data business is really taking off (see BusinessWeek.com, 1/23/07, "Sprint Loses Its Wireless Data Crown"). If the company can't get a handle on its problems soon, it may not be in control of its own destiny too much longer.

http://www.businessweek.com/bwdaily/...tm?chan=search

[larry]

Sprint's not going anywhere.

[bobolito]

Yeah, we know they are not going anywhere. But whether they get sold or not is another story.

[Dogma]

How about an Alltel Sprint merger in the makings??

[DarrylLeeOHS30]

I would think that there's too much to finish with the nextel purchase for them to think of selling. Although an alltel merger would somewhat make sense, I kind of doubt it would happen.

[larry]

Can Alltel afford Sprint?

[strunke]

Originally Posted by larry

Can Alltel afford Sprint?

Not by themselves. But a merger they wouldn't have to have the money to afford them.

[blsemp]

Originally Posted by larry

Sprint's not going anywhere.

I would think Malone and others in the cable industry have looked real hard at Sprint and T Moble. Because they do have a coast to coast presence. Don't think that there is not enough money out there to take them down.

[jones]

Originally Posted by larry

Can Alltel afford Sprint?

Let's see.
$80 Billion?
How much are the Cable TV Co Worth
to come up w/ this Amount?
Alltel, can they afford to Buy
Something worth More than Them?

[jones]

Sprint Loses More Subscribers Than Expected
http://wireless.seekingalpha.com/article/30595

[jrip]

Originally Posted by jones

Sprint Loses More Subscribers Than Expected
http://wireless.seekingalpha.com/article/30595

Sprint is going to keep losing customers for a while, until Gary Forsee and company wake up and address the companies problems. So far the only thing Sprints management is interested in is pleasing investors. The problem is that more customers is more important than more investors right now, since Sprint does not have a money problem. Just a lack of new net adds problem. They may break even later in the year, but that's about as good as they are going to do with the current management team.

[blsemp]

Sprint use to have good commercials. Now they just want to criticize at&t.

[jones]

Originally Posted by blsemp

Sprint use to have good commercials. Now they just want to criticize at&t.

These Customers Leaving Sprint,
Where are they Going?
Their Customers Keep Porting their
Numbers to at&t at RadioShack.

[larry]

Originally Posted by jones

These Customers Leaving Sprint,
Where are they Going?
Their Customers Keep Porting their
Numbers to at&t at RadioShack.

Customers leaving IDEN PTT don't really have a better PTT alternative with another carrier like AT&T. So I'm puzzled as to where they're going and why.

[RJB]

These numbers really do surprise me.

[bobolito]

Originally Posted by larry

Customers leaving IDEN PTT don't really have a better PTT alternative with another carrier like AT&T. So I'm puzzled as to where they're going and why.

Then I wonder why they are switching to Cingular's PTT.

[larry]

Originally Posted by bobolito

Then I wonder why they are switching to Cingular's PTT.

I heard it's not as good. Is that true?

[leogator]

Originally Posted by larry

I heard it's not as good. Is that true?

It's not. A medium sized local business tried to switch to PTT on Cingular's network and was severely disappointed. They had a lot of regular handsets on Cingular and wanted to consolidate their dispatch function under one roof. They want to switch back but will probably wait for the Sprint and Nextel networks to equalize before switching back and use hybrid phones.

On the other hand, I have heard a lot of good things about Alltel's PTT which is based on Kodiak's system as well.

The problem for Sprint/Nextel is that there is actually a very small market of people that truly need PTT. A lot of consumers bought into it because it was the first M2M system, so you could talk very cheaply. Those people discovered that you could get M2M more reliably somewhere else.

[bobolito]

It's just like any other cell service. Some will have good experiences with it, some will not. I've heard others being impressed with it saying it is much better than Nextel, all because of the increased coverage, and they compare the speed saying that it is just as good as Nextel. But I guess most people that are used to Nextel handsets might be disappointed that Cingy's PTT handsets aren't as robust and as loud as Nextel's, but that's more a phone manufacturer's deficiency rather than a service deficiency. The less knowledgeable, of course, will blame the service provider for that.

[larry]

Nextel phones have always had the loudest and best sounding speakerphones in the business.