In the perils that Sprint (
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Alert) Nextel continues to endure, Google may offer the solution, but will the search giant actually pursue such an acquisition? TMC’s Rich Tehrani believes such a move to be the best thing for the company and the industry, as he stated in his recent
blog.
This proposed acquisition may still be an option as Sprint Nextel (
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Alert) canceled its $3 billion convertible sale just a day after the company announced it. The sale was canceled, according to Sprint, due to unfavorable terms.
The sale was being led by Deutsche Bank AG, Goldman Sachs Group Inc., JP Morgan (
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Alert) and Citigroup Markets.
Sprint spokesman, James Fisher said in a Rueters report, “We had attempted this placement because we anticipated that it would allow us an opportunity to accelerate the payment of our debt, but the conditions turned out not to be favorable.”
Struggling to turn the tide of customer churn, Sprint revealed its plan for a private placement of convertible preferred shares worth roughly $3 billion on Wednesday morning. This cancellation is considered by some to put Sprint in a potentially difficult situation as it has shown that it wanted to raise capital to pay back debt.
Reuters (
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Alert) reporters Karen Brettell and Sinead Carew also noted that the cancellation is considered to be another sign that companies are facing increasing challenges to raise capital at affordable rates due to the reduction in corporate exposures of banks and investors demanding higher premiums.
Sprint claims that despite this activity and the movement within the stock market due to the announced sale and subsequent cancellation, the company remains in solid financial shape.
In fact, the company’s debt weakened on the news and its 6 percent bond due in 2016 widened 42 basis points. The debt costs have jumped according to MarketAccess, from roughly 3 percent at the beginning of 2008.
According to at least one trader however, the cost to insure Sprint’s debt with credit default swaps rose approximately 35 basis points to 360 basis points, or $360,000 per year for five years to insure $10 million in debt on the news.
The cancellation does not mean the end of merger and acquisition talks for Sprint. In fact, according to Walter Piecyk of Pali Research, the sale of iDEN, the Nextel portion of Sprint’s network, is inevitable. Once this is complete, the next natural step is the sale of the rest of Sprint.
For those who don’t want to see the No. 3 mobile phone service swallowed up by other large wireless providers, the possibility for a Google (News - Alert) purchase is appealing.
The challenge is that Sprint’s financial situation – no matter what its representatives claim – is not strong. It isn’t any secret that the company has been struggling with lost revenue and lost customers. While Google could in effect turn it around, the real question is – does it want to take on the role of savior where Sprint is concerned?
Susan J. Campbell is a contributing editor for TMCnet and has also written for eastbiz.com. To read more of Susan�s articles, please visit her columnist page.
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