Sprint Nextel Corp.’s (NYSE: S) stock price has returned to 2008 levels, which indicates just how badly off the company has been. And it begs the question why, on that comparative basis, the bids from DISH Network Corp. (NASDAQ: DISH) and Softbank are so modest. The reason is simple. Sprint is a badly damaged company with the most limited chances for recovery to its status of five years ago.
After a new $25.5 billion bid for Sprint ownership by DISH, Softbank had a predictable reaction. Its offer to buy 70% of Sprint is the better one. Some experts view the $20.1 billion offer by Softbank as much as an investment as a purchase. Softbank has indicated that it will put billions of dollars into the third-largest wireless company in the United States to allow it to compete more directly with AT&T Inc. (NYSE: T) and Verizon Wireless. The plan is a long shot. Sprint has about 50 million U.S. subscribers, which is only about half of what the other two companies boast. Unless Sprint can offer phenomenally low prices to American wireless consumers, it is unlikely to draw new customers. And such low pricing will cause losses that will not be recouped unless prices can be raised eventually.
DISH on the other hand, wants to marry its satellite TV products with Sprint’s wireless ones to create a model closer to the bundled products offered by cable companies and its larger telecom rivals. These companies can offer home TV, broadband and cell service as part of the same package. Without a transaction, DISH will stay in an increasingly marginalized part of the media delivery sector. DISH Chairman Charlie Ergen said “A transformative Dish/Sprint merger will create the only company that can offer customers a convenient, fully integrated, nationwide bundle of in- and out-of-home video, broadband and voice services.” But that is not true. The marriage would only make the DISH products competitive with companies that have been in these businesses for years.
No matter which of the two companies prevails, a price of $7 a share is still well below the $9 plus range where it traded almost five years ago. Sprint is much worse off compared to what it was in late 2008. The comparatively modest offers to buy the company show that. No matter which of the two offers gets the prize, the stock market says it is not much of one.