Sprint's Board Says No to Hesse on MetroPCS

By Josh Long

The board at Sprint Nextel Corp. reportedly rejected a proposal last week by the carrier’s chief executive, Dan Hesse, to purchase MetroPCS, the pay-as-you-go mobile-phone operator.

Sources told The Wall Street Journal that the board rejected the proposal to purchase MetroPCS for roughly a 30 percent premium over MetroPCS’s share price earlier in the week.

One of the board’s reported concerns was that shareholders would react poorly to an agreement at a time when Sprint’s stock has been depressed.

Sprint, the No. 3 U.S. wireless carrier, has struggled to keep pace with its larger rivals, AT&T and Verizon Wireless, and its finances aren’t as strong as its competitors. In a special report earlier this month, Moody’s Investors Service said that AT&T and Verizon Wireless will continue to grow stronger while Sprint and T-Mobile USA struggle to raise adequate capital. Sprint on Monday announced plans to offer $2 billion in a private placement of notes.

MetroPCS is just a fraction of the size of Sprint (roughly 55 million customers at year end), although MetroPCS has been growing steadily. MetroPCS on Thursday reported adding 1.2 million customers last year to end 2011 with 9.3 million subscribers. Unlike Sprint ($2.89 billion in 2011 net losses), MetroPCS is profitable with 2011 net income of $301.31 million.

A source told the Journal that Sprint’s incentive for the merger with MetroPC would have been cost savings by combining the two carriers’ networks, but the report said MetroPCS has used nearly all of its network capacity. That means Sprint would have been essentially just been buying MetroPCS’s customers. One source told the newspaper that the agreement would have valued MetroPCS at between $7 billion and $8 billion, including net debt.

Shares of Sprint closed Monday at $2.55 and the stock price has ranged from a 52-week high of $6.45 to a 52-week low of $2.10.

In a note Monday, Moody’s said Sprint has been taking steps that appear to have alleviated the credit rating agency’s concerns over Sprint’s financing.  

“Sprint has made substantial progress raising capital and taken concrete steps towards resolving its relationship with Clearwire which would address its potential spectrum shortage,” Moody’s said. “ In addition to today’s debt offering, Sprint has contemplated utilizing vendor financing to fund its LTE rollout, which, if successfully implemented, would mostly satisfy Moody’s concerns about its future financing needs.”