News that Sprint Nextel is talking to Japan’s Softbank about a possible buyout is bad news for investors who’ve been holding onto their MetroPCS shares in hopes that the nation’s third largest carrier will swoop in with an offer. Last week MetroPCS agreed to a deal with Deutsche Telekom’s T-Mobile USA, but as recently as February the no-contract carrier was in talks with Sprint Nextel. So many investors have been buying the MetroPCS in hopes that Sprint would outbid T-Mobile USA.
Now it looks like Sprint is looking to Japan rather than Texas for a partner, and the carrier is poised to be the target rather than the buyer. Of course even if Softbank does buy Sprint, the acquired company will still need U.S. spectrum in order to grow, so a future acquisition could make sense. But investors think it’s unlikely that Sprint Nextel will bid on MetroPCS now; the stock is down more than 4% this morning.
Meanwhile Sprint’s stock is up more than 14%. The carrier has seen its stock price more than double since the beginning of the year, when it hovered just above $2.00 per share. Before today’s news, analysts were predicting that the company would use its rising stock as a currency to acquire a smaller carrier. In a late summer research note, Macquarie Securities wrote, “We see Sprint as the driving force behind mid-cap consolidation in the U.S. and with its improved stock currency, rising EBITDA estimates and reduced borrowing costs, it now has the flexibility to pursue M&A with both stock and cash.”
Now it looks like that inflated stock price will just make the deal costlier for Softbank.
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