Reports that Sprint Nextel CEO Dan Hesse called a special board meeting late last week have sparked speculation that Sprint’s board could launch a counterbid for MetroPCS. On Wednesday DT inked a deal to merge its wholly-owned T-Mobile USA with MetroPCS, seizing the chance to acquire the no-contract carrier after Sprint Nextel reportedly passed on a deal with MetroPCS last February. Sprint Nextel decided to invest in network upgrades instead of an acquisition.
Instead of regretting that choice, Sprint Nextel executives may be congratulating themselves today. The focus on network upgrades has pleased Wall Street and Sprint Nextel’s stock is up more than 100% since February. That means that if the company uses its stock as a currency to acquire MetroPCS, it will have a lot more buying power than it had 6 months ago. Of course the price of the deal is a bit higher now; if Sprint Nextel makes a successful bid for MetroPCS it will have to pay DT a $150 million breakup fee on top of the purchase price.
Yesterday Sprint said that its resident mergers and acquisitions specialist, Keith Cowan, will postpone his plans to leave the company. Cowan had planned to leave Sept. 30, but now the company says he will stay on board until the end of the year.
Analysts have said that Sprint Nextel could justify a higher purchase price for the company than Deutsche Telekom could, based on anticipated cost savings and return-on-investment. The immediate synergies that could result from a Sprint Nextel-MetroPCS merger could be greater than those in a T-Mobile USA-MetroPCS merger. Sprint and MetroPCS both operate their 3G networks using CDMA technology, while T-Mobile USA relies on GSM-based technology. That should make it easier to offer Sprint’s devices (like the iPhone 5) on MetroPCS’s network, and vice versa.
A bid for MetroPCS could also be a defensive move for Sprint Nextel at this point. “Sprint has the most prepaid business to potentially lose given the merger announcement between T-Mobile and MetroPCS,” says Jefferson Wang, wireless practice lead at IBB Consulting. Wang says the T-Mobile USA/MetroPCS deal “paints Sprint into a corner because the choices to consolidate effectively are limited.”
Like T-Mobile USA, Sprint has been growing its prepaid business aggressively this year, offering no-contract plans through Virgin Mobile, Boost Mobile and Assurance Wireless. Most carriers are seeing growth in prepaid outpace growth in contract plans, and they are also starting to identify the “top-up” transaction as a way to extend to their customers offers from other retailers.
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