Recent press reports that Sprint Nextel’s board prevented a potential acquisition of rival MetroPCS garnered headlines over the weekend and reaction from the analyst community early this week.
Reports suggested that the proposed deal, that was reportedly spearheaded by Sprint Nextel CEO Dan Hesse and valued at around $8 billion, appeared set to move forward before a last-minute balk by the carrier’s board of directors.
Many noted that the deal made sense for Sprint Nextel in that it would have removed a no-contract provider from the mix, supplied some additional spectrum assets along with compatible network technology and that MetroPCS had a relatively unleveraged balance sheet seen as important considering Sprint Nextel’s current financial concerns. Wells Fargo Securities noted that MetroPCS’ leverage ratio at the end of 2011 was 1.9x, versus 4.5x at Leap Wireless.
However, with Sprint Nextel still struggle to consistently post a financial return and billions of dollars currently tied up in network plans and future device subsidies, the proposal looks to have been a bit of a stretch for those holding the purse strings.
The reported deal also follows success for Sprint Nextel gleaned from the demise of AT&T attempted $39 billion acquisition of T-Mobile USA, which Sprint Nextel opposed.
Analysts were also split on what the deal falling apart means for the leadership at the nation’s No. 3 carrier. If the deal was indeed shepherded by Hesse and nixed by the board, then who is really in charge at Sprint Nextel.
“Reports that Hesse will resign or that he and the board are at odds are inaccurate and misinformed in our opinion,” wrote Macquarie Equities Research in a note. “[Sprint Nextel] has the fiduciary responsibility to present all deals to the board whether they support them or not and theoretically; that is what might have happened in this case.”
Hesse took over Sprint Nextel at the height of its operational troubles tied to an ill-advised acquisition, and following several rough years has seen the company’s fortunes begin to turn, mostly in its ability to stem customer losses boosted by its recent iPhone launch. However, Sprint Nextel remains stymied by a network upgrade plan that will require several billion dollars over the next few years and a dearth of network partners that have signed on to help finance that effort. The carrier is also on the hook for a significant investment into subsidiary Clearwire, which is looking at its own network evolution path.
MetroPCS for its part has managed to carve out a niche for itself in the no-contract space. The regional carrier currently serves more than 9 million customers using a mix of CDMA 1x and LTE services. The carrier does have a bit of a troubled history dating back to its original spectrum acquisitions in the mid-90s when it was known as General Wireless, but has since become a solid player in the mobile space.
These tribulations leave many prognosticating an eventual tie-up with one, or more, of its smaller rivals in an attempt to better secure scale to rival larger rivals Verizon Wireless and AT&T Mobility.
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