Sprints runs into trouble in takeover triangle
The wireless company's stock has surged as a buyout battle builds, but its struggles will continue regardless of ownership.
Earlier this year, Softbank agreed to pay $20.1 billion for a 70% stake in the third-largest U.S. wireless company. But DISH Network (DISH) has trumped the SoftBank bid by 13%, offering $25.5 billion for the Overland Park, Kans., company. SoftBank planned to retain Hesse, but his fate if DISH were to prevail is unclear.
Sprint's board is evaluating the DISH offer. SoftBank argues that it provides a more compelling value for Sprint shareholders. The Japanese company, however, may not want to raise its bid for Sprint.
Softbank and DISH each have their reasons for wanting Sprint, but its financial performance isn't among them. Sprint has lost money for the past six years, and analysts expect it to remain in the red for another two years. It trails AT&T (T) and Verizon Wireless (VZ) in this cutthroat market and will struggle to gain traction even under the most optimistic of scenarios.
Like its competitors, Sprint spends big bucks subsidizing smartphone sales. The company also is upgrading its network, a huge cost that's depressing earnings. Sprint's outlook isn't entirely dire. Customer service has improved under Hesse's leadership, and its company's financial performance is improving. Hesse also has his share of fans, such as The Street.com's Jim Cramer (who's also a contributor to MSN Money).
Some perspective is in order. Sprint recently posted "better-than-expected" earnings that were nonetheless awful -- a loss of $1.4 billion. It shed 243,000 monthly contract customers in the latest quarter. That was worse than analysts expected, and it came as its rivals saw gains.
Further complicating the picture are reports that Verizon has offered Clearwire (CLWR) $1.5 billion to lease wireless spectrum, throwing a monkey wrench into Sprint's plans to buy the parts of Clearwire that it doesn't already own for $2.2 billion. Clearwire is integral to Sprint's growth plans, so much so that some pundits have speculated that it's the motivation for DISH's attempt to buy the telecom company.
Sprint will have a tough time no matter who owns it. Though its shares have surged more than 25% this year on the buyout moves, investors should steer clear of the stock because there's still plenty that can go wrong.
Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.
More on moneyNOW
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Killer Companies is a look at companies in the headlines that are killing it and getting killed in the market today.