Sprint – Finding Buyers For Nextel WORSENS

Implications: Debt, Equity Price Tag, and Poor Access to Capital are the obstacles to finding a buyer to Nextel.

Analysis: Despite temporary upticks in the Dow, finding a buyer for Nextel will very difficult.  No one wants to pay $5.4 Billion in equity for a company that requires several hundred million dollars to separate into two parts.  Further, no one wants to spend that much on equity only to spend nearly as much on assuming debt.

NII is an interesting possibility to purchase Nextel.  However, I still believe a Morgan O’Brien sale is a better idea.  However, NII is a good runner up.

Let us assume that Sprint could even find a buyer at an equity price of $5 Billion and was willing to assume another $5 Billion in debt.  The operational challenges are enormous.  After nearly 3 years of back office and network systems integration, to separate out the systems would be prohibitively expensive.  However, the question now is should Sprint stop this transaction because of operational support systems separation issues?  It is like saying do I want to buy a new car versus keeping the clunker I have already spent tens of thousands of dollars fixing?  Buy new.  In Sprint’s case, sell Nextel.

However, the real deal killer is the credit disaster.

There is still an excess of private money out there.  Hence I do not believe Sprint should stop the Nextel sale.

As for the price of Nextel, I suggest that Dan Hesse, CEO of Sprint, drop the equity price tag of Nextel in exchange for getting the buyer to assume the $5 Billion of debt Sprint is currently carrying.  It is a fair trade off.  Any buyer of Nextel would have to billions of dollars in capital into Nextel just to ensure radio coverage.

Dan Hesse needs to look at the sale of Nextel as eliminating operational expenditures and removing debt from its own books.  Dan Hesse should not look at making a profit off of a Nextel sale.