So The Wall Street Journal reports today -- according to its favorite "people familiar with the situation" sentence -- that wireless provider Sprint Nextel Corp. (NYSE: S) is considering spinning off or selling its Nextel unit. This is when I hear the screeching sound of a needle scraping a record. Say what? Should we play that again?
I guess I shouldn't really be that surprised since the $35 billion acquisition of Nextel Communications Inc. in 2005 has always seemed, to say it mildly, challenging. This would be, as the Journal puts it, "a dramatic acknowledgment" that the merger has actually been a failure.
Well, only Monday we heard that Deutsche Telekom AG (NYSE: DT) may be interested in Sprint. Could it be that either Deutsche Telekom demanded such an action, or that Sprint management decided such an action could entice DT to indeed go forward with an offer (despite the probable problems such a merger could face, as Jonathan Berr outlined in his post Monday)? Without Nextel, Sprint would rid itself of much debt. It is also considered to have better handsets and fewer dropped calls, making it a more attractive target.
The differences in corporate culture made the now three-year-old merger difficult and Sprint has lost subscribers while its competitors added them. Of course, the stock price has suffered as well, down over 60% since the merger. No wonder then that Sprint is looking to undo the merger. The Journal lists several options, including selling Nextel to a consortium of investors related to Nextel's founder Morgan O'Brien. Other possibilities of course include private equity firms, or a spin off of Nextel.
Sprint, the third largest wireless carrier in the U.S., is facing several problems these days and has been losing in its competitive efforts against AT&T Inc. (NYSE: T), which won an exclusive deal with Apple Inc. (NASDAQ: AAPL) to sell the iPhone, and Verizon Wireless, a joint venture between Verizon Communications Inc. (NYSE: VZ) and Vodafone Group Plc. (NYSE: VOD) -- the latter, incidentally, also announced a deal with Apple to sell the iPhone in 10 countries.
Sprint's stock is up nearly 3% on the news. While this could be a real positive for Sprint, it is nevertheless going forward with other strategic actions -- and perhaps neglecting to focus on the Nextel issue.
Naturally, with the recent talks between Yahoo! Inc. (NASDAQ: YHOO) and Microsoft Corp. (NASDAQ: MSFT), one can only wonder what could be the outcome of such a merger. While it's not to say that there haven't been large successful mergers, this is a reminder of what a bad one can be like.
