Unconfirmed reports of an aborted bid by Sprint Nextel Corp. for rival MetroPCS Communications Inc. drew several twists from analysts Monday.
They variously liked the idea or blanched at the potential hit Sprint shareholders might have suffered. There was even speculation that Sprint CEO Dan Hesse’s standing with the board of directors may have taken a hit.
According to published reports, Sprint’s board of directors balked at a management plan to buy MetroPCS for upward of $8 billion.
Neither company would comment on the reports, which came late Friday from CNBC, The Wall Street Journal and others. The Journal’s report Monday pegged the deal as a mix of cash and stock.
The Journal, which did not identify its sources, said directors of the Overland Park-based carrier argued that Sprint’s management needed to stay focused on its difficult jobs at hand, namely the ongoing network upgrade and continuing effort to improve operations.
Hesse had supported the MetroPCS deal but ultimately agreed with the board’s conclusion, according to the Journal’s unverified account.
To the degree that account is correct, Hesse’s “ability to continue as CEO of Sprint now must be judged as uncertain,” analyst Craig Moffett wrote in a note to clients of Sanford C. Bernstein & Co.
Moffett declined Monday in an email to elaborate on this point.
Without details of the discussion, it’s hard to know whether Hesse’s support was less than enthusiastic or the board simply acted on its own judgment rather than rubber-stamping management.
Moffett’s note said that despite the board’s rejection, consideration of the deal amounted to acknowledgment that Sprint needs to grow.
MetroPCS has 9.3 million subscribers, all of whom buy services month to month, which the industry calls prepaid service. It earned $301 million on $4.8 billion in revenues.
Sprint’s 55 million wireless subscribers include a mix of prepaid customers and customers who sign service contracts, or postpaid subscribers in the industry’s language. Sprint lost $2.9 billion on $33.7 billion in revenues in 2011.
A bid for MetroPCS made sense to Jennifer M. Fritzsche, senior analyst at Wells Fargo, who counted several benefits in a note to clients.
It would eliminate a competitor at the “low end” of the wireless marketplace and provide Sprint with additional spectrum, or capacity to carry wireless traffic, Fritzsche’s note said.
Conversely, Mike McCormack, who follows Sprint for Nomura Equity Research, focused on the equity side of the purported deal.
His report said Sprint’s depressed stock price means the deal might have nearly doubled the number of Sprint shares outstanding and substantially diluted the ownership interests of existing stockholders.
A little more than a month ago, McCormack’s note said, Sprint executives had said in a private meeting that Sprint’s stock price was “too low to seriously consider” using it to buy other companies.
The apparent about-face suggested to McCormack that Sprint may have valued MetroPCS for its ability to generate cash because perhaps Sprint’s network upgrade, iPhone rollout and core operations weren’t “developing as Sprint had hoped.”
Sprint shares gained 8 cents Monday and closed at $2.55, their highest price since early December. MetroPCS shares lost 18 cents, closing at $11.83.
Separately, Sprint said it plans to raise $2 billion by selling new bonds privately to investors. The $1 billion in five-year notes will pay 9.125 percent, and an equal amount of eight-year notes, which are guaranteed, will pay 7 percent.
The company will use the funds for general corporate purposes, which could include repayment of other debts, funding its network upgrade and providing financing for Clearwire Corp. Clearwire operates the WiMax network on which Sprint currently provides its faster 4G wireless service.
Moody’s Investors Service scored the debt offering a positive development but continued to review Sprint’s debt rating for a possible downgrade. Moody’s still wants to know how Sprint will meet its future needs for wireless spectrum, or the capacity to handle traffic.