Big battles at Sprint, Dell could be an M&A signal

Are more bidding wars coming? It's hard to say for sure, but the main elements all seem to be in place.

By Jonathan Berr Apr 15, 2013 12:08PM
File photo of three Dish Network satellite dishes, on the roof of an apartment complex in Palo Alto, Calif. on Feb. 23, 2011 (© Paul Sakuma/AP)The Masters of the Universe are ready to pounce on deals with a gusto that hasn't been seen for a while.

First, Michael Dell's proposed $24.4 billion takeover bid for Dell Inc. (DELL) with Silver Lake was trumped by higher offers from Blackstone and activist investor Carl Icahn. Today, Dish Network (DISH), the satellite TV operator controlled by Charlie Ergen, made an unsolicited $25.5 billion offer for Sprint (S), representing a 13% premium over Softbank's planned acquisition of 70% of the wireless operator for $20.1 billion.

Like Dell, Sprint's core business has been eroding for years, and CEO Dan Hesse is feeling Wall Street's pressure to improve the telecom's performance. During the last quarter, the Overland Park, Kan.-based company lost 243,000 monthly contract customers, more than the 206,000 expected by analysts Bloomberg had surveyed. AT&T (T) and Verizon (VZ), by contrast, gained customers during that same period.
 
Sprint, also like Dell, beat Wall Street's low expectations in its latest quarter, which may bolster Ergen's case that the deal with Japan's Softbank undervalues Sprint. Hesse, who has been the public face of Sprint because of his work as a TV pitchman, may find himself squeezed out of a job, the same situation that Michael Dell faces at the company he founded in his college dorm room more than two decades ago.

Whether the Dell and Sprint battles are foreshadowing more takeover deals to come is hard to say, but it certainly is possible. The cost of capital is currently dirt cheap, which means financing can be easily put together for most deals. Surging values for stocks also provide companies with the currency to make acquisitions, and many companies have record amounts of cash on their balance sheets.

Indeed, a KPMG survey released earlier this year found that a majority of dealmaking professionals expected an increase in mergers and acquisitions this year.

One thing is for sure, though: More big deals mean more big paydays for bankers. The Wall Street Journal estimates that banks associated with the Dell deal could top $400 million in fees, the most in three years. Sprint isn't going to reach that level unless more buyers emerge, and that certainly seems plausible

Wall Street's bankers will be ready to jump out of their Gucci loafers at a moment's notice.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.

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1Comment
Apr 15, 2013 4:56PM
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Sprint mainly lost customers over the phone wars. Not because they don't have better service than the other networks. I've been a Sprint Customer since 2005. Back then you could practically upgrade your phone anytime you wanted to and they were up-to-date with popular phones. Then when they merged with Nextel customer service and phone quality went down hill. Also, with this new BlackBerry issue (they will only get the Q10 and not the Z10 like the other carriers) and taking so long to get the Iphone is Sprint's downfall. I contemplated leaving Sprint for another carrier but the only thing keeping me is that their plans are much more cheaper and beneficial to me. I have unlimited data (this is the only network that offers it) and I only pay $70.00 a month. I can't get anything like that with the other carriers - it wasn't worth me switching for a phone that's probably only good for a year anyway.
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