Deutsche Telekom Interested In Sprint Nextel?

Sprint Nextel’s stock rose more than 6 percent Monday morning following reports that Deutsche Telekom was considering buying it — but investors might want to be wary.

People close the company told DealBook that Deutsche Telekom has not held any discussions with Sprint Nextel and that the chance of an actual bid is low. Among the factors making such a deal a long shot: The two wireless companies use different technologies, Sprint has big problems of its own, and regulators in the United States could take a dim view of a deal that reduces the field of national wireless players from four to three.

For these reasons, plus a few more, Michael Rollins, an analyst at Citigroup, estimated Monday that there is only a 25 percent chance that Sprint Nextel would be acquired in the next 12 months. He put the potential price tag of such a deal at $12 per Sprint share, or about 50 percent above Friday’s close of $7.89

Deutsche Telekom owns T-Mobile USA, which is the fourth-largest wireless company in the United States. Sprint is the third-largest. Together, they would leapfrog the current leaders, AT&T and Verizon Wireless.

But buying Sprint would be a big challenge for Deutsche, which is partly owned by the German government. It would need to migrate Sprint’s customers to its own network, and could lose lots of them in the process, Mr. Rollins wrote.

Sprint has already suffered huge customer defections because of its troubled merger with Nextel. In February, Sprint said it would lose another 1.2 million subscribers this quarter, about the same amount it lost in all of 2007. Sprint’s Nextel deal is widely viewed as a high-priced debacle; Sprint recently wrote off most of the cost of the $35 billion transaction.

Regulators might also balk at a T-Mobile/Sprint combination. The Bush administration has been relatively friendly toward big mergers, but the next one could take a long look at how such a deal would affect consumers and competition.

Mr. Rollins estimated there was a 50 percent chance it would be blocked. Meanwhile, T-Mobile USA has officially launched 3G service in NYC – the rest of the markets should work by year’s end.

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~ by spyaokid on May 5, 2008.

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