A Sprint (S) Takeover of T-Mobile is 'Aspirational', But a Pre-Paid Deal May Not Be - Analyst (PCS) (LEAP)
Tweet
Share
E-mail
Get Alerts S Hot Sheet
Price: $21.20 --0%
Rating Summary:
15 Buy, 13 Hold, 0 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 13 | Down: 14 | New: 3
Rating Summary:
15 Buy, 13 Hold, 0 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 13 | Down: 14 | New: 3
Join SI Premium – FREE
Shares of Sprint (NYSE: S) have doubled over the past several months and one of the big reasons is investor interest regarding potential M&A. Analysts at Goldman Sachs discussed the potential of a 'landscape-altering deal' and some other options for the wireless carrier.
A deal with T-Mobile has been widely speculated about, and Goldman believes the a deal to combine the No. 3 and No. 4 operators makes sense. That said they also believe a potential Sprint/T-Mobile deal still has an "element of circular logic to it," so their sentiment is tempered.
To pull off such a deal, Sprint has a lot of obstacles, the firm notes, including: (1) pro forma balance sheet constraints; (2) equity currency contribution to Deutsche Telekom (DT), maximizing the value attributed to DT but minimizing DT’s equity ownership; (3) giving DT appropriate assurance a deal can be approved by regulators (T had to offer up a $6bn break fee).
A combined Sprint/T-Mobile could potentially be the largest non-LBO issuer in the high yield market at $35 billion, Goldman notes. Also, under almost any scenario, DT would have to retain significant equity ownership in the combined entity.
While recent commentary suggests that Sprint could be considering proposing a deal to T-Mobile, "the mechanics suggest that such a deal is aspirational." However, a smaller deal for a prepaid operator like Leap Wireless (Nasdaq: LEAP) and MetroPCS (NYSE: PCS) may be a more logical route for Sprint.
Goldman maintained their Neutral rating and $3.75 price target on Sprint.
A deal with T-Mobile has been widely speculated about, and Goldman believes the a deal to combine the No. 3 and No. 4 operators makes sense. That said they also believe a potential Sprint/T-Mobile deal still has an "element of circular logic to it," so their sentiment is tempered.
To pull off such a deal, Sprint has a lot of obstacles, the firm notes, including: (1) pro forma balance sheet constraints; (2) equity currency contribution to Deutsche Telekom (DT), maximizing the value attributed to DT but minimizing DT’s equity ownership; (3) giving DT appropriate assurance a deal can be approved by regulators (T had to offer up a $6bn break fee).
A combined Sprint/T-Mobile could potentially be the largest non-LBO issuer in the high yield market at $35 billion, Goldman notes. Also, under almost any scenario, DT would have to retain significant equity ownership in the combined entity.
While recent commentary suggests that Sprint could be considering proposing a deal to T-Mobile, "the mechanics suggest that such a deal is aspirational." However, a smaller deal for a prepaid operator like Leap Wireless (Nasdaq: LEAP) and MetroPCS (NYSE: PCS) may be a more logical route for Sprint.
Goldman maintained their Neutral rating and $3.75 price target on Sprint.
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- Jefferies Upgrades Husqvarna AB (HUSQB:SS) to Buy
- Morgan Stanley Downgrades Mobileye N.V (MBLY) to Underweight
- JPMorgan Downgrades Boyd Gaming (BYD) to Neutral
Create E-mail Alert Related Categories
Analyst Comments, RumorsRelated Entities
Goldman SachsSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
