Analyst makes case for Sprint buying MetroPCS rather than pursuing T-Mobile

09/11/2012 1:13 PM

05/16/2014 7:40 PM

Sprint Nextel Corp., under pressure to consolidate the smaller competitors in the U.S. wireless industry, may have success going after a prepaid carrier like MetroPCS Communications Inc., Goldman Sachs Group Inc. said.

That kind of deal would be easier to complete than trying to buy T-Mobile USA Inc., a larger carrier that AT&T Inc. failed to acquire last year, Jason Armstrong, a Goldman Sachs analyst in New York, said in a report issued Monday.

Sprint’s stock price, which has more than doubled this year, is stoking speculation that some kind of deal will happen, he said.

Scott Sloat, a spokesman for Overland Park,-based Sprint, declined to comment.

Sprint’s balance sheet, particularly its $21 billion in gross debt, would make an acquisition of T-Mobile USA impractical, Armstrong said. Either MetroPCS or Leap Wireless International Inc., another pay-as-you-go carrier, are the more probable takeover candidates, he said. Sprint and T-Mobile USA also could form a network-sharing agreement, letting them compete more effectively with Verizon Wireless and AT&T.

A Sprint takeover of T-Mobile is “aspirational,” rather than likely, said Armstrong, who has a neutral rating on the shares. “A smaller prepaid-centric deal may be the more logical route for now if Sprint determines to pursue M&A.”

Sprint and T-Mobile rank a distant third and fourth in the U.S. wireless industry, with a combined 27 percent of the revenue generated by national carriers, according to Goldman Sachs. Verizon ranks first, with 37 percent, and AT&T is second, accounting for 35 percent.

Sprint shares fell 1.4 percent to $5.08 in midday trading Tuesday. The stock had climbed 120 percent this year. MetroPCS, up 13 percent this year, rose 0.8 percent to $9.85 today.

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