Lately, the buzz is that a Sprint Corp (NYSE:S) buyout seems unlikely. Rather, the betting is that there will be some type of investment or partnership to provide mobile services. The result is that Sprint stock has been in a trading range since early June.
But it is important to keep in mind that a buyout deal would take quite a bit of time to negotiate. Let’s face it, the complexities are mind-numbing — and there are significant regulatory hurdles.
Yet the good news — at least for those who own Sprint stock — is that the majority-owner of the company, SoftBank Group Corp’s (OTCMKTS:SFTBF) Masayoshi Son, is very engaged. He understands that a transaction is really the best path for the company. During May, Son was pretty clear about his intentions when he said:
“Basically anything is possible. But I think the No. 1 favorite, the quickest route to synergy, is the option that we pursued from the start — T-Mobile. However, it’s also up to the other side and whatever conditions they may have. Therefore, if there are other opportunities for industry consolidation that offer better conditions, of course we want to consider them with an open mind.”
But then his next move was to setup an exclusive negotiation with Charter Communications, Inc. (NASDAQ:CHTR) and Comcast Corporation (NASDAQ:CMCSA). Both cable operators certainly want to bolster their mobile footprint. In light of the increase in cord-cutting throughout the industry, there is an incentive to broaden the offerings — which should help with customer attrition.
The agreement provided for a deadline of the end of July. And since nothing has transpired so far, some of the air has been let out of Sprint stock.
Yet, Son’s move is probably more of a way to create more urgency with T-Mobile US Inc (NASDAQ:TMUS). Actually, he turned things up even more with the recent discussions with Berkshire Hathaway Inc.’s (NYSE:BRK.A,NYSE:BRK.B) Warren Buffett and Liberty Interactive Corp’s (NASDAQ:QVCA) John Malone regarding a potential investment, which could be as much as $20 billion. No doubt, this would be a game-changer as the total value of S stock is about $33 billion.
Now it’s true that TMUS has had a great run during the past few years. The company’s CEO, John Legere, has shown lots of managerial moxie, especially with the “Uncarrier” branding strategy. The efforts have resulted in standout customer gains that have catapulted the company catapulting to the No. 3 position in the U.S. market.
The problem is that the Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T) are fighting back, such as with unlimited plans. Sprint is also getting more aggressive.
So yes, there are some signs of deceleration with TMUS. During the latest quarter, the company reported a sequential decline in total subscribers from 2.1 million to 1.1 million.
Unfortunately, the upcoming quarter is expected to show continued weakness as well. JPMorgan Chase & Co. (NYSE:JPM) analyst Simon Flannery is forecasting total customer additions of only 887,000. It would be the first time in four years that the number fell below the 1 million mark.
Granted, Flannery thinks a big part of this is due to customers holding back before the launch of Apple Inc.’s (NASDAQ:AAPL) new iPhone. But hey, it does seem reasonable the intense competitive environment is also a notable factor.
Bottom Line on Sprint Stock
A deal between Sprint and TMUS would certainly provide much more scale to take on the mega operators. Keep in mind that there will need to be tremendous resources for the build-out of next generation network.
Yet for holders in Sprint stock, it’s unclear what a transaction would look like. Will TMUS be willing to pay a premium? Or is Sprint stock fully valued right now?
Well, the key is the potential synergies. Based on the analysis from Barclays PLC (ADR)’s (NYSE:BCS) Amir Rozwadowski, they come to a hefty $20 billion — which would imply a value for Sprint stock at $14.
True, such an estimate is far from exact and based on various assumptions. But even if the right number is in the midpoint between the forecast and the current value, there is still plenty of room on the upside — making Sprint stock still an interesting buyout prospect.
Tom Taulli runs the InvestorPlace blog IPO Playbook and operates PathwayTax.com, which provides year-round tax services. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
