SK Telecom, one of the largest companies in South Korea, apparently tried to buy Sprint-Nextel (NYSE: S) in 2008. It was always hard to understand why an Asia firm would want to own a troubled American cellular operation. It may have been that SK Telecom’s prospects in its home country were exhausted. The US wireless market is the world’s second largest after China.
Deutsche Telecom apparently believes that ownership of a wireless company in the US was a route to profitable expansion. It was always a fool’s errand. DT was lucky to find a ready buyer in AT&T (NYSE: T). The American telecom giant believes that 1+1= something more than 2. The engineers of such mergers always believe that. Research of past M&A transactions show that is rarely true.
Sprint may not be without buyers. There are a number of overseas companies that look at the American market as still promising. Vodafone (NYSE: VOD) after all owns a minority position in Verizon Wireless and does not seem interested in selling it.
The most likely buyers of Sprint are huge overseas telecom companies that are in mature markets. That might include France Telecom or one of the large Chinese phone companies. The federal government might block a deal with a Chinese firm, although it is hard to show that Sprint is a strategic asset in the US, especially in its crippled state.
A buyout of Sprint, although risky, would almost certainly be based on its current valuation and WiMax 4G network. Sprint’s share price in 2007 was $20. It is only just above $4 now. An acquirer might convince itself that Sprint’s network and subscriber base have not degraded much in four years and that 4G will become so popular with consumers that Sprint is bound to benefit.
Sprint’s board should be encouraged by the fact that there is a sucker born every minute even among the world’s largest companies. The rate of corporate marriages has picked up with the rebound in the economy and the stock market. Sprint can hope that there is at least one firm optimistic enough about the prospects of the American cellular market that it is willing to pay the $15 billion or $20 billion a Sprint buyout would command.
Douglas A. McIntyre