Skip to main content

Sprint - next merger target ?

There was a news item about D. Telecom is looking at possible takeover or merger with Sprint Nextel. I am sure lot of you may have missed this item in the flood-gate of news (and blogs) on Yahoo Microsoft.

However if you are interested in next takeover saga, start looking at Sprint for following reasons:

  • Stock is down from above $20 to $8. It went all the way down below $6 when I noticed the stock (and took a small position)
  • It is # 3 in US wireless market with over 40 million subscribers
  • Have excellent service provider network
  • Have a good but tired brand
  • In last few quarters, it has been struggling and hence stock got crushed
  • Provides an excellent opportunity as merger or takeover target
Now let's see what price Sprint could get sold:
  • It has enterprise value of $42-44 B with debt at $22 B
  • With revenues of $40B and revenue multiple of about 2, it can command enterprise valuation of $80B (ATT has EV/revenue multiple of 2.5 and Verizon has 1.5). At 1.5 multiple, it can command valuation of $60 B giving stock price of about $13-14 at low end and $20 at high end
  • Alltel which got bought by PE at $27B has about 11 million subscribers. This results into valuation of 2500 per subscriber. Sprint has 40 million subscribers. However the churn rate is high for Sprint subscribers. So if we apply 1500 to 2000 per subscriber, it comes to similar valuation of $60B to $ 80B ($14-20)
  • Of course there are quite a few risks such as regulatory approval, mgmt churn, subscriber churn, heavy capital investment needs. But without risks there are no gains
So if you are willing to take risk, Sprint would be a good buy at $8 with potential return of 50% in 18 months

/Shyam

Comments

Anonymous said…
You dont respond to my comments anymore... as seemingly the only reader of your blog that comments do you not want to have a discussion... Am i the lowley Cal State Acct. undergrad below intellingent conversation.

Hey ever seen this chart from the fed

non-borrowed reserves are -50bil for the first time in history (never before negative print)

http://research.stlouisfed.org/fred2/series/BOGNONBR?rid=19

I suppose if you dont respond Ill just assume you dont want to have an intelligent conversation
11:39 PM
Shyam said…
That's not the case. It's just that your comments need to be on the topic of blog I wrote. Please feel free to comment on Sprint which is topic of this blog writing and we can have some discussion
7:03 AM
Anonymous said…
Sorry Shyam---

I just saw the title of your blog "Shayam's commentary on Markets" and assumed that you would be interested in discussing macro trends and news events regardless of the articles you write. I know a lot about mortgages, banks, accounting and securitization. I am trying to broaden my scope in macro trends and have branched more into playing broad indices although still i hold some focused plays. I am also pretty profeciant in risk managment and options trading.

Anyway it seems you are more interested in Risk Arb plays which is cool. Again I suggest the book Den of Theives. Great book all about Milken, Lasker Bletzbergs, boesky, icahn and even a bit of T. Boone. Boesky was the biggest badest risk arb ever. If you are interested in the mechanics of merger or risk arb, as well as how they played it back in the day this book will be like financial porn to you.

Anyway if you would like to discuss and debate macro trends that is fine with me, however talking about S doesn't really interest me. I know nothing about how wireless companies are run and valued. I can decipher and devour their financial statements etc... but when it comes to arb'ing a potential merger with DT ill take a pass.

Again I would enjoy discussing the markets in general if you would like too. Did you see Big Ben's speech and those charts he used. Pretty crazy IMO that they want to loosen GSE standars even further and lift capital requirments even more. For god sacks these guys are already gear at like 20x even more depending on calculations. 20x leverage is freaking insane.

well if you wanna discuss markets let me know

otherwise good luck to you
8:49 PM
Post a Comment

Popular posts from this blog

2025 = Is it going to be 1997 or 2000?

Happy Holidays... After 5 months of hibernation with no real reason than writing block, I decided to use quiet morning of Christmas day to start writing again. Lot has happened in last 5 months - in particular release of Animal Spirits with Fed starting interest rate reduction cycle and historic victory of President Trump for 2nd term. As the year turns into 2025 and stock markets at all time high, one would wonder, what's next?  To answer this, one needs to look back at 1920s and 1990s to give us some context on where markets may be headed. 1920s saw invention of televisions, radio, wider adoption of cars, vacuums, penicillin and many other which we consider household items now. These inventions created roaring 20s with markets going up by 500% eventually leading to crash of 1929. However during mid-20s, markets keep going up due to excitement of these inventions and end of World War-1 and Spanish Flu Pandemic. 1990s also saw many inventions - the key being launch of Netscape in 1...
Post a Comment
Read more

And the Oscar goes to...

It's Oscar Sunday and time for predictions for few categories - before I digress into talking about drama in DC or markets.  First of all, I want to recognize the damage LA fires have done to the beloved areas of Los Angeles and impacted families across all spectrums. My heart goes out to them and wish them recovery and rebuilding of their lives... This year's Oscar nominees and post nomination period had been interesting to say the least. Due to this, the field is wide open in almost all categories and that's what makes prediction game so interesting. Just to set expectations, I would consider a win if I get even 50% predictions correct given the dynamics of nominees this year. So here are my predictions - "And the Oscar goes to..." Best Picture - Anora (surprise could be "The Brutalist") Best Director - Sean Baker for "Anora" (Surprise could be Brady Corbet for "The Brutalist") Best Actor - Adrien Brody for "The Brutalist"...
Post a Comment
Read more

The Politics and Gamesmanship of TikTok!

TikTok is less than 3 hours from going dark on USA's east coast if TikTok owner Bytedance (and Chinese Government) follows thru its "bluff" to honor the law " Protecting Americans from Foreign Adversary Controlled Applications Act" which goes into effect on Jan 19, 2025. And suddenly there is lots of politics and gamesmanship around TikTok.. Let's look at the players and their positions US Congress: The " TikTok Ban" law was passed by congress with bipartisan support and coincidently it goes into effect one day before new administration takes charge. Everyone knew the exact date and time of oath taking ceremony of new President...but maybe the congress did not think that there would be change of President and did not bother to put effective date post new government taking charge...that created a window of 36 hours of "law being in effect" unless... President Biden: Biden himself did not think that he won't be President for 2nd term. S...
Post a Comment
Read more