The Wall Street Journal-20080204-Deal Journal - Breaking Insight From WSJ-com
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Deal Journal / Breaking Insight From WSJ.com
Full Text (499 words)Is Sprint Nextel
Worth Saving?
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Big Write-Off Related
To Tie-Up Deal Reminds
Investors of Value Lost
Is Sprint Nextel making an unwitting bid for business school case- study status? Investors could hardly be blamed for thinking so after reading the Sprint SEC filing Thursday that the cellphone company may write off $30.7 billion of goodwill related to the 2005 deal that combined Sprint with Nextel.
That wouldn't sap Sprint Nextel of more cash, but it is a reminder of just how much value has been lost since the deal was struck.
At the time of the deal -- billed as a merger of equals -- Nextel's market capitalization was roughly $33 billion, as was Sprint's. Today, the combined company's market cap is $29.69 billion. Operationally, it isn't much better. Last year, Sprint Nextel lost 1.2 million postpaid subscribers, and it has one of the highest churn rates in the industry. The solo Nextel had one of the lowest customer-defection rates.
What is going wrong? It doesn't help that the company has disproportionate exposure to the same kinds of high-risk customers behind mortgage lenders' woes. Put simply, AT&T and Verizon Wireless are outpacing Sprint Nextel in part because they cut off subscribers who don't pay, while Sprint has a history of welcoming back customers with spotty credit records.
Do the company's stumbles make it a tempting takeover candidate? With a well-known brand, a nationwide network and more than 50 million subscribers, Sprint Nextel could be an attractive entry point into the U.S. wireless business for companies such as Google or Comcast, or for Mexican telecommunications magnate Carlos Slim. Some bankers suggest going private, and rumors of a buyout have swirled for years.
Sprint spokesman James Fisher wouldn't comment on speculation about the company's business plans. "We are sound financially, we have strong cash flows from operations and we have good liquidity on the balance sheet."
-- Heidi Moore
Advisers Update:
Microsoft-Yahoo
Finally, a bright spot for Stephen Schwarzman's Blackstone Group.
The private-equity firm, which has a small advisory arm, won a role alongside Morgan Stanley on the biggest M&A plum so far in 2008: advising Microsoft on its roughly $45 billion bid for Yahoo. (Goldman Sachs Group and Lehman Brothers Holdings are advising Yahoo, Deal Journal is told.)
Should the deal get struck -- and the more than 60% premium Microsoft offered may be hard to resist -- it would be a double blessing for Blackstone, whose lead banker on the deal is veteran media banker Jill Greenthal. A deal that size could land any one bank a fee in the neighborhood of $25 million.
It also would vault the firm to the top of the league tables that M&A bankers are so fixated on -- it doesn't make the top 25 now. According to Thomson Financial, a $45 billion deal credit would put Blackstone in the top five in global announced deals, ahead of such M&A stalwarts as Citigroup, J.P. Morgan Chase and Merrill Lynch.
-- Dana Cimilluca
