Sprint says Time isn’t Ripe for Merger
Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The telecom majors are in the acquisition mode to fight the spectrum crunch. On the contrary, Sprint (NYSE: S), the third largest carrier of the US, appears contained at the moment. All credit to its wholesale agreement with fellow carrier Clearwire (NASDAQ: CLWR).
The carrier plans to consolidate, but not before 2014. Chief Executive Dan Hesse said that the company would not enter into any major deals as it currently prefers to focus on its $5 billion network upgrade project. It does not want to divert funds until the completion of this cost heavy project as an acquisition would put financial pressure on the company. Also, Hesse hopes that in the meanwhile the stock price would recover and bring Sprint better times for merger consideration.
Although Sprint is cautious now not to enter into deals, the company had considered acquisition options not long before.
Merger attempts
A couple of months back the carrier almost entered into an acquisition deal with MetroPCS (NYSE: TMUS) but pulled back in the eleventh hour as the company’s board voted against it. Last year too, Sprint was in discussions with T-mobile to increase its wireless airwaves access. This too didn’t materialize.
As of now, the company believes that a merger would not lead to positive synergies. The attempt might rather tighten its financial position at this stage when it needs it the most for the ongoing network upgrade.
Are there any chances of consolidation?
However, there are decent chances that the company might have to enter into a deal to reap savings or else get beaten by competition. Already AT&T (NYSE: T) is considering to buy Leap (NASDAQ: LEAP) while T-Mobile is in merger talks with MetroPCS.
Also, Hesse is hopeful of the Federal Communications Commission (FCC) and the Justice Department. He believes that the regulators would not have a problem with a merger involving Sprint as it is not as big as the top two telecom players, and so there lies less chance of gaining a spectrum monopoly which could hurt competition.
My takeaway
Sprint needs to be smart to be sustainable in the long run. The company’s present pal Clearwire and old mate LightSquared could not clearly light up the world of Sprint. While the company bid adieu to LightSquared, it is in careful consultation with Clearwire about how to manage the intricate process of upgrading to LTE. Poor carrier is in confusion, whether to concentrate on upgrading LTE or spectrum.
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