Deutsche Telekom Bid for Sprint Unlikely - Credit Suisse

by: Eric Savitz May 14, 2008 | about stocks: DT / S    

Eric Savitz

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Will Deutsche Telekom (DT) actually buy Sprint Nextel (S), as has recently been rumored?

Not likely, says Credit Suisse analyst Justin Funnell.

In a research note this morning, Funnell says that in buying Sprint, Deutsche Telekeom would not become the number one wireless operator in the U.S., but instead it would be “three, four and five all at the same time,” with three separate networks on incompatible technologies, one each using the GSM, CDMA and iDen standards.

Funnell says the math could theoretically work; a 100% cash bid, he writes, could be 15% EPS accretive in 2010. But he says that the extra churn created from customer migration to a single platform could offset the synergies in the deal, eliminating the EPS accretion. And he says the deal could stop the company from pursuing other M&A transactions, leaving it highly concentrated in the U.S. If you did a cash-and-stock offer to preserve cash for other deals, he adds, the deal could be EPS dilutive.

His conclusion: “the combination of the potential churn from merging with Sprint-Nextel and DT’s financial criteria make a DT bid for Sprint-Nextel unlikely.”

As I wrote previously, he is not the only skeptic on this concept.

Sprint today was up 22 cents, to $9.28, at market close.

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