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Sprint Nextel Corporation (NYSE: S) Shares Gains Ground On Anticipated Take-over Bid

Contributed by: Justice Sirikah
Date: Sep 14, 2009

Struggling U.S mobile phone operator Sprint Nextel Corporation (NYSE: S, S message board) took a giant leap in U.S trading on Monday to touch a fresh six-week high in the afternoon, on a rosy outlook leveraged by the news that Deutsche Telekom AG (NYSE: DT) may launch a bid for the company and merge it with equally struggling rival, T-Mobile USA. The German-based telecom firm which is currently locked in a similar dialogue that could culminate into the amalgamation of T-Mobile UK and France Telecom’s Orange UK, has reportedly assigned Deutsche Bank AG to look into the potential buy-out of Sprint.

Valued at $10.6 billion and weighed down on a long-term debt of over $20 billion, Sprint faltered in the second quarter ended June 30, to net a loss of $384 million, from another loss of $344 million in the comparable period of 2008.

Above all, the results owes to a decrease in market share during the three months where its subscriber count trailed behind that of Verizon Communications Inc. (NYSE: VZ) and AT&T Inc. (NYSE: T) which owns more sophisticated 3G networks.

But if the deal goes through, Sprint and the number four U.S operator, T-Mobile, will end up with a combined 78 million clients and better positioned to keep the pressure on rival operators. However, besides the fact that Deutsche Telekom still need to solicit cash from its shareholders to finance the deal, another hindrance in merging the two entities is the incompatibility of their network systems. While T-Mobile makes use of global system for mobile communications (GSM) for calls and high speed packet access (HSPA) for 3G data, Sprint uses code division multiple access (CDMA) and Evolution Data Optimised (EVDO).

Sprint shares advanced to $4.20 on the news during the lunchtime trading, from Friday’s closing of $3.77. In contrast, the stocks of AT&T, Verizon and Deutsche Telekom were all in the red by the time of writing – trading at $26.47, from $26.66; $31.01, from $31.26; and $13.75, from $13.87, in that order.