Sprint’s Most Likely Buyer May Be CenturyLink
May 16, 2011
Sprint Nextel Corp. (S)’s Dan Hesse told Congress last week the third-largest U.S. wireless operator may end up being acquired if AT&T Inc. (T) purchases T-Mobile USA Inc. The most likely buyer is CenturyLink, the biggest company in telecommunications without a wireless unit, analysts said
proposed deal would create the largest
CenturyLink, based in Monroe, Louisiana, is the most logical acquirer because it has the financial resources, it’s shown an appetite for big deals and it needs a wireless business, say analysts including Chris Larsen of Piper Jaffray Cos. Though there are other potential buyers, such as Verizon Wireless or cable companies, they’re less likely because of regulatory hurdles or integration risks, he said.
“CenturyLink is a company with a really good balance sheet and
looking for areas to invest its capital, its free cash flow in
growth,” said Larsen, who is based in
Scott Sloat, a spokesman for Sprint, Debra Peterson, a spokeswoman for CenturyLink, and Tom Tauke, a Verizon spokesman, declined to comment.
rose 5 cents to $5.15 on the
$39 billion deal to buy the Deutsche Telekom AG (DTE) unit,
subject to approval from the
Regulators are now considering whether to allow two companies to control about three quarters of the market. They probably wouldn’t let Verizon or AT&T buy Sprint, which would result in almost all the market in the hands of two companies, said Sanford C. Bernstein & Co.’s Craig Moffett.
“Any of the litmus tests that they use in Washington would, by definition, mean that the second deal would be harder than the first,” said Moffett, who is based in New York and has an “underperform” rating on Sprint shares.
CenturyLink has become the third-largest
CenturyLink could use a mobile service to boost sales as customers abandon home-phone lines and growth in demand for Internet services tapers off. The company may be ready to acquire Sprint in the next couple of years, according to both Larsen and Moffett.
“If CenturyLink imagines itself as a long-term player in the enterprise segment, they may need to add wireless,” said Moffett. “You have to put them as perhaps the most likely long- term acquirer” for Overland Park, Kansas-based Sprint.
CenturyLink’s market value was about $25 billion, compared with
about $15 billion for Sprint, before today’s trading. The
company bought both Embarq and Qwest with stock. A deal for
Sprint would reunite the wireless company with Embarq, a
landline operator that spun off from Sprint in 2006 and was run
CenturyLink completed the Qwest deal in April and may want to finish absorbing the new customers and assets before taking on another large merger, Larsen said.
Cable companies such as Comcast Corp. might also explore buying Sprint to add wireless to their service bundles, said Sergey Dluzhevskiy, vice president at Gamco Investors Inc., which owned about 13 million shares of Sprint at the end of last year according to regulatory filings.
Comcast and its peers are increasingly competing with phone companies, such as Verizon Communications, which can offer discounted packages of TV, Web, home-phone and wireless service. Sprint, which has resold air time to cable companies in the past, would provide a nationwide wireless network.
A cable bid is unlikely given their track record though, said Larsen.
“Keep in mind, cable has flirted in and out of wireless for a long time,” he said. “They haven’t proved it to be a successful quad-play.”
D’Arcy Rudnay, a spokeswoman for Comcast, didn’t immediately return a call seeking comment.
Sprint could also buy the shares in partner Clearwire Corp. it doesn’t already own, analysts said, though Sprint said in December it had no plans to do so. Clearwire’s stock had dropped 22 percent this year before today, pushing its market value down to $4 billion.
In any case, a potential acquirer such as CenturyLink would likely want to wait several quarters before making a move, Larsen said. The time would give Sprint the chance to finish making investments to upgrade its network and resolve other financial obligations, he said.
“You’d rather have Sprint spend the money to upgrade its network on its own nickel than yours,” Moffett said. “That creates another incentive for potential partners to wait and see if they can get a better deal in Sprint if it’s in significant distress a year or so down the road.”
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