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Technology Stocks : Sprint Nextel Corporation (S)
S 8.6200.0%Apr 1 12:00 AM EDT

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From: hedgefund5/4/2008 7:22:03 PM
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Wake up: Sprint may be bought....HF

Deutsche Telekom Considers Bid for Sprint
Purchase Would Aid
Effort to Move Beyond
A Tough Home Market
By MIKE ESTERL in Frankfurt and DANA CIMILLUCA and in London
May 5, 2008

Deutsche Telekom AG is weighing a bid to acquire Sprint Nextel Corp. that could catapult the German telecommunications giant's wireless arm, T-Mobile USA, to the No. 1 position in the U.S., according to people familiar with the matter.

Deutsche Telekom's deliberations are at a preliminary stage and management may very well turn away, these people cautioned. If a bid is launched for Sprint Nextel, which has a stock-market capitalization of $22 billion and is the No. 3 player in the U.S. wireless market, it could still be weeks, or even months, away, they added.

The potential bid is being considered as the former German monopoly scouts for acquisitions in countries outside the German market, where it has seen its revenue shrink in recent years amid rising competition and falling prices. Last year, it booked just over 50% of its revenue outside Germany for the first time.

T-Mobile is a distant No. 4 in the U.S. wireless market, with 28.7 million customers at the end of December. It invested heavily last year to acquire new wireless spectrum and is eager to expand. By acquiring Sprint Nextel, it could roughly triple its client base in the U.S. and surpass leaders AT&T Inc. and Verizon Wireless, a joint venture of Verizon Communications Inc. and Vodafone Group PLC.

Bonn-based Deutsche Telekom increasingly is focusing on its international wireless businesses as its domestic fixed-line services slump. Its wireless businesses generated more than half of the company's €62.5 billion ($96.3 billion) in revenue and €19.3 billion in operating profit last year.

The U.S. has been the biggest growth engine. T-Mobile USA added 3.6 million customers last year, boosting its revenue to $19.3 billion from $17.1 billion in 2006. In February, Deutsche Telekom completed its $1.6 billion acquisition of U.S. carrier SunCom Wireless Holdings Inc., which had 1.1 million customers.

The German company has a stock-market capitalization of $79 billion and money to spend after whittling down its debts in recent years.

Deutsche Telekom has looked more closely at Sprint Nextel since the U.S. company's share price has fallen below $10, far below its 52-week high of $23.42. The German company also may opt to strike while the euro is near record highs against the dollar, according to people familiar with the matter.

Still, there are many arguments against Deutsche Telekom making such a move, these people add, with one of them describing it as "a long shot." One major complication is that T-Mobile USA uses different wireless technology than Sprint Nextel, which would complicate the integration of their networks and increase costs. It is also unclear if U.S. regulators would permit a tie-up of the No. 3 and No. 4 carriers.

Adding Sprint Nextel to its roster also would saddle Deutsche Telekom's management with another big restructuring task in addition to its German operations.

Sprint Nextel has been struggling to retain customers, and its revenue slipped to $40.1 billion last year from $41 billion in 2006. The U.S. carrier booked a net loss of $29.5 billion in the fourth quarter, triggered by a noncash goodwill impairment charge of $29.7 billion.

Deutsche Telekom's management also is busy with a deal that would give it roughly a 25% stake in Hellenic Telecommunications Organization SA, or OTE, Greece's dominant telecommunications company. It agreed in principle in March to buy an initial 20% stake for €2.5 billion, but negotiations with the Greek government over management powers have been difficult.
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