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.

By Jonathan Berr Apr 17, 2013 9:49AM
Sprint (S) CEO Daniel Hesse is in the middle of a takeover battle that he would rather avoid.

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.

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3Comments
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No data caps, no throttling, and good customer service are what attracted me.  The lack of dropped calls and lost connections is why I stayed.
Apr 17, 2013 1:01PM
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I hope sprint fails. there customere service sucks and when they offer something for a certain price over the phone they wont honer what they said. Hint when you say your going to do something do it, and don't say that it didn't happen or wasn't offered at a later date, especialy when I have recorded proof. People recode all conversations with sprint as they will lye through there teeth.
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