Sprint – Remember I Said It Was Going To Get Worse Before It Gets Better

Implications: Equity holders are up in arms. However, the creditors and bond holders were very happy. Raising cash now is paramount.

Analysis: Hesse, was showing fiscal responsibility.  The company needs to pay down debt.  The action Sprint is taken is not designed to keep the equity markets happy.  The action is designed to satisfy bond holders and creditors.   Hesse is doing the right thing.  If Sprint does not get control of its debt, the creditors will be running the company completely.  This is what happens when a company goes into bankruptcy.

Hesse is working feverishly to stabilize the company’s cash situation.  He is doing the right thing.  When a company is facing distress as Sprint is, the goals of equity players (stock owners) and creditors/bond holders will conflict.

What did people expect?  The move was a bold one and one that had to be executed now.  Unfortunately, the deal fell through because Sprint could not get the right price.  This is not good.  However, Hesse, is a clever man so don’t panic.

Sprint needs to find a way of generating cash to pay down its debt and deal with operational cost issues.  A joint venture with SK Telecom or the current venture with Clearwire will not help create cash; just opportunity.

Cash pays the bills; kind words and good intentions do not.

The company needs to find a way of raising cash without giving away the farm.  So far Dan Hesse has done all of the right things for a company in severe financial distress.  Yes, this also means he will tick off stock holders.  Who Hesse needs to worry about are the creditors and bond owners.