Sprint board vetoes bid to buy MetroPCS: sources

NEW YORK Fri Feb 24, 2012 8:00pm EST

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NEW YORK (Reuters) - Sprint Nextel Corp's (S.N) board vetoed a multibillion dollar purchase of smaller rival MetroPCS Communications PCS.N at the last-minute this week, sources said, in a surprise move that could throw the future of Sprint CEO Dan Hesse into question.

Sprint's board decided at a meeting on Wednesday against going ahead with the purchase, pulling the plug on a deal that was at least weeks in the making and expected to be announced as soon as this week, one of the sources said.

MetroPCS and Sprint declined to comment.

The reasons for the board's decision could not be immediately determined, but another source familiar with the situation said there was no split between the board and Hesse.

Sprint's board and management decided to pull out because it was not the right time to do the deal, the source added.

Sprint has been struggling to find its footing for the last several years, and buying a company that is worth more than half its market value would have significantly strained its already stretched finances.

"The question now is what happens to Dan Hesse," said Craig Moffett, an analyst at Alliance Bernstein. "It's very unusual for a deal to get this far, for it to be recommended by the buyer's CEO, and for it then to be rejected by the buyer's board."

The deal would have offered MetroPCS a premium of about 30 percent in cash and stock, the source said.

MetroPCS has a market capitalization of $4.2 billion, while Sprint has a market value of about $7.5 billion. MetroPCS shares rose 8.2 percent in after-market trading on Friday, while Sprint fell about 0.4 percent.

A 30 percent premium seemed "irrational" and would have hurt Sprint shareholders, Roe Equity Research Kevin Roe said.

He described the veto of the deal as "a vote of no-confidence" in Hesse from the board.

"He's on a short leash," Roe said. "The board did the right thing, thank God. It's remarkable this deal got this far."

The timing for a deal raised some eyebrows, given that Sprint is already weighed down by a costly $7 billion network upgrade and a $15 billion commitment to Apple Inc (AAPL.O) for its iPhone deal.

"The execution risk at Sprint is already at an extremely heightened level. To pile this acquisition on would be irresponsible," Roe said.

Since he joined four years ago, Hesse has been working to undo the damage caused by Sprint's disastrous purchase of Nextel in 2005.

That deal saddled Sprint with technology problems and a costly second network it plans to shut down next year. Since the Nextel deal it has faced heavy losses of contract customers.

Sprint investors are already skeptical about whether it can pull off its massive network overhaul without hitches. Another acquisition could add to the complexity for the company, which is already borrowing billions of dollars for that project.

"It would have been a challenge for Sprint to integrate this well," Stifel Nicolaus analyst Christopher King said.

Sprint may have seen MetroPCS as a good fit because both companies have a similar network technology and target cost-conscious customers who pay for calls in advance.

"Their technology would have meshed relatively well, and their market positionings are relatively complementary," Moffett said. "But Sprint is cash-poor, and a large incremental debt burden would be difficult for Sprint to shoulder."

CNBC, which first reported the news, said the value of the deal would have been around $8 billion. But one of the sources said that number would include debt.

Whether or not the deal's collapse will change Hesse's future at Sprint, King said that it would at least make his tenure there more uncomfortable.

"Assuming the story is correct, certainly he and the board have a significantly different vision for the company right now," King said. "Either way it's awfully embarrassing for Hesse."

(Reporting By Paritosh Bansal, Sinead Carew and Nadia Damouni in New York and Brad Dorfman in Chicago; Editing by Bernard Orr and Richard Chang)

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Comments (2)
raymondpoppy wrote:
Hesse has done a good job with the hand he was dealt. Vastly improved customer service, unlimited data plans that beat AT&T and Verizon, the iPhone, improved network, etc.

Feb 24, 2012 11:42pm EST  --  Report as abuse
Protect2000 wrote:
If everything looks so rossy then why are they loosing money? Come on just be real. They are way behind in technology. They banked their heart and soul on WIMAX technology which has been no good. Now they are trying to get into LTE. Too late. Verizon and AT&T have them and has already implemented it. And you can see that in their Stock Prices. It is hovering around 2 for sometime. Outlook looks dark for this company.

Feb 25, 2012 9:10am EST  --  Report as abuse
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