Struggling Sprint Nextel Could be Discussing Deal with T-Mobile
Sprint Nextel Corp. refused to respond to reports released on Monday implying that the company may be considering the sale of Nextel to Deutsch Telekom AG.
The Wall Street Journal quoted unidentified people that said deliberations between Germany’s Deutsche Telekom, the parent company of No. 4 wireless company T-Mobile, and Sprint Nextel were at "a preliminary stage and management may very well turn away."
A deal between Sprint Nextel and Deutsche Telekom’s T-Mobile could send the wireless provider to the top spot on the U.S. market.
News of the possible deal came as Qwest Communication International Inc. announced Monday that it would switch from reselling Sprint’s wireless service to Verizon Wireless.
Qwest contributed about 824,000 of Sprint’s 53.8 million subscribers, as of last year.
Sprint Nextel spokeswoman Leigh Horner said the company had no comment about the possible deal with T-Mobile.
Sprint Nextel shares rose 83 cents, or 10.5 percent, to close at $8.72 on Monday.
Sprint Nextel is expected to lose a large amount of subscribers this year, even after attempts to revive the industry by offering flat-rate annual plans.
Analysts disagree whether the nation’s third-largest wireless carrier is ripe for a takeover.
"Maybe Deutsche Telekom is sending up a few flags to learn what the market actually thinks about a possible deal," Kagan said. "If too much resistance is felt they can simply walk away without a bloody nose. If however there is not much resistance, then it could get interesting."
However, T-Mobile and Nextel’s technologies are incompatible, which Sprint has had enough experience with from their previous merger with Nextel in August 2005.
Since its acquisition of Nextel, Sprint has been unable to gain much traction in the market. In March, it announced it had lost 683,000 wireless subscribers with annual contracts and expected to lose another 1.2 million in the first quarter and a similar amount in the second quarter of 2008.
The Wall Street Journal also said that Cyren Call, a company started by Nextel founder Morgan O’Brien, was trying to gain enough investors to purchase Nextel in hopes of using its technologies for a nationwide wireless network of public safety communications.
Analysts agree that such a deal is feasible, but only if the government would allow it.
“In light of the way the current competitive landscape is likely to shape the way policy makers would look at the merger, our sense is that such a deal would be more likely than not to pass muster with the government," Stifel Nicolaus & Co. analysts said in a note to investors on Monday.
Sprint Nextel is the third-biggest provider of cell phone services in the U.S. and has a market capitalization of approximately $22 billion. AT&T Inc. and Verizon Wireless are the top two U.S. providers.
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