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Tuesday, October 24, 2006

Sprint By The Skin Of Its Teeth (S)(T)(VZ)(BLS)

These days you know business is bad when your company is mentioned as a buy-out target. The most recent candidate was car parts supplier Delphi which is being eyed by big LBO form Ripplewood. And, Delphi is bankrupt for crying out loud.

So, no one should be surprise that down-and-out US cell phone company Sprint has made the list as well. Wall St. believes that Sprint’s earnings for the most recent period will be enough to make grown men cry. Especially if they own the stock.

Sprint, now known as SprintNextel, is expected to add only 300,000 new subscribers for the quarter that just ended. By contrast, Cingular, owned by AT&T and BellSouth added 1.35 million new customers for the period. And, Verizon Wireless is forecast to add 1.7 million.

Sprint’s results are just peanuts. Blame the integration of the Nextel customers, which has already cost the chairman of Sprint his job, just a few months after the company’s president left. Odd as it may seem, the CEO has stayed in his job.

Sprint’s results since buying Nextel have been poor, and it has cost the shareholders dearly. Sprint’s stock traded at $26.70 in April. On a good day it can hit $17 now. With AT&T and other phone companies near 52-week highs, the problems at Sprint look even worse.

Cable companies might be buyers if Sprint goes on the block. The one area where they cannot compete with big telecom is in offering wireless service. They have regular phone service, TV, and broadband locked up. But, it would be nice to offer the whole kit and caboodle.

According to Morningstar, Sprint has $13 billion in cash and $26 billion in debt.
Sprint has a market cap of $51 billion and a revenue run rate of about $35 billion.

It would be a tough deal, but, with all that private equity money floating around, why not?

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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