Sprint Is Racing for a Showdown


Sprint ( S ) has enjoyed a rally of nearly 175% from its February 2012 double bottom where common shares nearly 'Benjamin Buttoned' below $2. Today, shares are holding above $7 in light of last week's "aggressive" counter-bid by Dish Network ( DISH ). Initial bidder, Japan's Softbank (TYO:9984), has alerted short sellers that it doesn't intend to let Dish Network's "inferior" bid pull Sprint's feather from its hat -- not without a rock fight. The two companies have taken to the street in a very uncommon battle royale; a fight to out-cheapen shareholders in a time where would-be acquirers are comfortable paying up for flagship franchises (i.e., Heinz ( HNZ )).

There has not been an overabundance of back-slapping on the Street in calling Sprint's bull campaign roller coaster-like return to former support from two years ago. It didn't take a stroke of genius to bottom-fish in the name; sitting number-three in the nation's nobly regulated telecom space, Sprint was the smart money's bet that AT&T's ( T ) and Apple's ( AAPL ) iPhone monopoly would fizzle - and that 4G/LTE infrastructure could be implemented as the category-leading technology before a reversal in record low interest rates had an opportunity to squeeze Sprint's debt load or the dividend payout of its competitors in this leverage-sensitive sector. Perhaps the lack of excitement around the potential merger is directly correlated with a quiet frustration - sellers' remorse.

An eventual counterbid by Softbank, Dish, or a newcomer wouldn't exactly catch the Street off guard. The daily chart of Sprint is putting in bull-pennant consolidation, suggesting a move to the $9 handle could be in the cards. Anecdotal sources have suggested merger-arb funds are positioned to clip more than a few pennies per share before invitations to a shotgun wedding are in the mail.

Taking a technical lens to the long term daily chart of Sprint, price action seems stunted at current levels - it almost appears to be an incomplete capitulation. Should $9 be acquired, other technical triggers suggest $11 - $12 could be taken shortly thereafter. Depending on how/if this occurs, a final target near $18 looks to be the proper handle to retire the ticker; $18 places a valuation on Sprint just above $50 billion USD, taking Sprint firmly out of the grasp of Dish and Softbank. Who, then, could be an ultimate buyer?

Two cash-rich companies come to mind, and both are no stranger to one another. Google, Inc. (GOOG) placed a huge vote of confidence in Sprint's hometown headquarters last year when announcing Kansas City had been chosen for the groundbreaking rollout of its uber-fast broadband product, Google Fiber. Perhaps another potential bidder (who not so coincidentally decided to issue $17 billion in fixed/floating rate debt on a whim over the weekend) is Apple. Contemplating a final suitor worthy of a franchise like Sprint, it's hard to understand why it would go slumming with Dish or Softbank when both Google and Apple have an open gap in telecom - and a reason to be there.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Technology

Referenced Stocks: AAPL , DISH , HNZ , S , T



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