Tuesday, March 22, 2011

Sprint's (S) Future Bleaker with AT&T (T) Deal

If the bid by AT&T for T-Mobile from Deutsche Telekom AG (NYSE:DTE) is allowed to go forward, the future of Sprint (NYSE:S) is much bleaker and more challenging, as it would fall to an even weaker No. 3 position.

Shares of Sprint had been trading down by about 17 percent in earlier trading, and closed down well over 13 percent on the day, as implications of the deal for Sprint hit investors.

With the takeover announced yesterday, AT&T would become the largest U.S. mobile-phone company. The deal still needs regulatory approval. Sprint also held talks with Deutsche Telekom about buying T-Mobile, people with knowledge of the matter said this month.

By acquiring T-Mobile, Sprint would have gained ground on larger rivals Verizon Wireless (NYSE:VZ) and AT&T. Now, AT&T could leave Sprint as a far weaker No. 3 player in the industry, said Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York.

“A Sprint deal is now off the table and Sprint is left to go it alone,” Moffett said in a research note today. The AT&T deal, if approved, makes Sprint’s prospects “decidedly worse,” he said.

Moffett cut his rating on Sprint to “underperform” and lowered his price estimate for the stock to $3 from $5, saying the company is worth about $9.2 billion. Moffett estimates Sprint’s operations are worth $22.2 billion and that the net value of its non-operating assets, including debt, cash and a stake in Clearwire Corp. (NASDAQ:CLWR), is negative $13 billion.

Sprint closed Monday at $4.36, falling $0.69, or 13.61 percent.

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