Summary
Thank goodness those rumors regarding a T-Mobile USA buy of Sprint Nextel are dead. Media speculation is bad and is designed to help stokes someone’s rumor mill and usually not to the benefit of the targeted company, meaning your company Sprint Nextel.
Analysis
I have been just as vocal as the mainstream media, largely because I cannot believe some of the downright dumb speculation. I think a merger between T-Mobile and Sprint Nextel is bad for all shareholders. It may sound sexy to the investment banking community but we are clearly talking about a square peg being fit into a round-hole scenario.
Do you want a repeat of the original Sprint and Nextel merger? Do you want to see an example of not learning from your mistakes? Let’s think about all of the reasons why the Sprint Nextel merger never should have happened.
In an ideal world, the Sprint Nextel merger should not have happened. When the Sprint-Nextel merger occurred investment bankers were so concerned with balance sheet rollups and building up subscriber numbers they failed to realize that carriers with dissimilar networks technologies cannot integrate their networks easily or without spending billions of dollars. Even I had tried to rationalize the reasoning behind how to successfully complete such a merger and integration effort. Basically I just about drank the bathwater analysts were telling me to drink then I wised up and said “ENOUGH”.
A deal between DT and Sprint Nextel will have a quick uptick on the stock and I am certain you will see nothing but trouble long term. You will see an integration effort as complex as the Nextel effort; probably even worse, since T-Mobile has no backhaul operation to speak of. Good luck trying to pull that together. You will spend money on integration and not growth. You will regret any such merger in a year. However, every stock broker is going to love you because they will be making transaction fees buying the stock due to the temporary uptick and selling the stock when everyone realizes you are about spend billions of dollar doing network integration and your stock takes a nose dive.
Insane suggestions that a deal between Deutsche Telekom AG (DT) and Sprint Nextel are necessary in order to gain access to your backhaul relationships with Level 3 are wrong. Spend billions of dollars on a dissimilar network to gain access to backhaul so you can build out T-Mobile’s network? That is spending money for all the wrong reasons.
Let us not even begin to talk about a foreign company buying an American cellular carrier. That is another whole reason to not want to do it. You will be spending the next two years explaining to Washington, DC why it is a good idea. You could have spent the next two years doing something more productive.
Barring regulatory issues, the best candidate today for a deal is Comcast. Almost two years ago, I wrote that I thought any deal between Sprint Nextel and Comcast would be a disaster. Two years ago I had valid reasons, I wrote:
"A Comcast acquisition would be bad for both Sprint and Comcast. First and foremost neither company understands the other company’s space. Next, Brian Roberts (and the Roberts Family) of Comcast has his hands full with a very angry board and large group of shareholders. The disastrous credit environment definitely does not support such a merger. However, if even if the credit environment was good, a merger of Comcast and Sprint would be a repeat of the Sprint-Nextel mistake. Unless there are clear synergies and ways to synergize the companies, do not merge them. A merger based purely on merging balance sheets is a mistake.
Folks need to stop badgering Hesse with talks of mergers. A merger between two broken companies leaves you with one bigger broken company. Wait until Dan Hesse completes the restructuring. A restructured company with new management is more than just a fresh coat of paint on an old house. A restructured Sprint stands a better chance of positively contributing to a merger than a broken Sprint”
Two years later (2009) – Comcast has learned the wireless business and has a plan. Sprint is in comparatively greater shape now then it was in two years ago. I give you enormous credit for getting the company where it is today. Doing a turnaround takes time.
Today, Comcast has a vision for wireless. It is now time to aggressively move to leverage the relationships you have built in creating the new Clearwire. Building a company that will have lasting value takes time. Please do not rush to merging with the wrong company.
P.J. Louis consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
