By Michal Lev-Ram
Just as one high-profile buyout bid is wrapping up, another may be beginning.
Deutsche Telekom AG (DT), the parent company of T-Mobile, is considering a bid to acquire Sprint Nextel (S), according to news reports Monday.
Shares of Sprint were up nearly 6% on the news, while Deutsche Telekom was down about 1.4%.
While Germany-based Deutsche Telekom has nearly 120 million customers worldwide, T-Mobile is the smallest of the top four mobile operators in the United States, with just 28.7 million subscribers. A combination with Sprint (which has about 54 million customers) would make T-Mobile the largest U.S. wireless carrier, ahead of rivals Verizon Wireless (VZ) and AT&T (T).
Last year, Deutsche Telekom said it would look at international acquisitions as part of a new growth strategy its CEO called “Focus, fix and grow.”
“We want to use our expertise to be able to grow in mobile communications, including the possibility of acquisitions, based on our strict business criteria,” Rene Obermann, the company’s chief executive, said in March 2007.
But while Sprint’s flagging share price, coupled with the benefits of its subscriber base and spectrum holdings, may make it an attractive target, some analysts say a buyout is unlikely to happen anytime soon.
Sprint has been struggling with customer service issues and managing the two networks it currently runs, and has also run into problems with the delayed launch of yet another next-generation network called WiMAX, now expected to roll out later this summer. All three of Sprint’s network technologies are different from T-Mobile’s GSM infrastructure, which means they’re compatible with different phones. Running all four could be a logistical nightmare for Deutsche Telekom.
Citigroup analyst Michael Rollins predicts that there’s a 25% chance of a Sprint acquisition — not just by Deutsche Telekom — in the next year.
“…The problems at Sprint are still deep-rooted and may deter a buyer in the near-term…” Rollins said Monday in a written report, adding that other potential obstacles to a deal going through include issues with regulatory approval and the difficulties of integrating Sprint and T-Mobile’s different networks.
A Deutsche Telekom spokesperson could not be immediately reached for comment. Sprint spokesperson Leigh Horner declined to comment on “speculation.”
Also on Monday, T-Mobile announced the New York City launch of its 3G network. It is the last of the top four carriers to roll out the technology, which provides customers with a higher-speed network well-suited for data services.