AT&T’s Acquisition Of T-Mobile Makes Sprint A Good Buy
Nuclear crisis in Japan. Civil war erupts in Libya. It seems the world is coming apart at the seams. But here’s the news that has investors getting excited about the market.
A huge telecom acquisition.
I’m sure you’ve seen it by now… AT&T (T) plans to purchase T-Mobile for a whopping $39 billion. Now, mergers and acquisitions happen all the time in business. But, this move will significantly alter the wireless industry in America.
In other words, this is a major deal.
What you may not have seen is what happened to Sprint Nextel (S) the day of the big announcement. The shares dropped over 15%. Can you say collateral damage?
Sprint’s a major competitor in the wireless space… although they’re quite a bit smaller than giants AT&T and Verizon (VZ). As a matter of fact, Sprint and T-Mobile are roughly the same size. So you can see why Sprint is concerned about the acquisition…
If the merger goes through, there will be two giants in the industry. Sprint will be left as the distant third.
It could be extremely hard for the company to compete in that environment. And Sprint’s executives have wasted no time telling the media how this acquisition hurts them.
Judging by the stock’s selloff, investors agree.
But here’s the thing… I have an entirely different viewpoint.
I think this is a great time to buy Sprint.
It might not be apparent – the company has gone through some tough times over the last few years (including a disastrous merger with Nextel) – but Sprint is in the process of an impressive turnaround.
My mother has been an analyst at Sprint for eleven years, and she keeps telling me about all the positive things going on at the company. She says the atmosphere in the office is upbeat. And employees are optimistic about the future.
And that’s not all…
There are plenty of big picture reasons why Sprint is an attractive buy right now.
First off, there’s no guarantee regulators will even approve the T-Mobile acquisition. Having two major players dominate the wireless market may not be what the government wants for this industry. In fact, Sprint CEO Dan Hesse recently said this deal could “stifle innovation”.
What’s more, Sprint may now be a more attractive acquisition target.
The company has 50 million subscribers… an impressive number even to a huge player like Verizon. And even if Verizon isn’t interested in Sprint, there are several major international telecom companies who might be.
On the other hand, Sprint could use the situation as a reason to go on the offensive.
There are several independent regional wireless companies who could make excellent buyout targets. If Sprint is worried about being too small, why not make a few acquisitions of their own?
A third option is for Sprint to stay the course. They’ve always been a leader in innovation. In fact, they were the first wireless company to offer 4G service to customers. The company has also significantly improved customer service. Sprint now ranks near the top in the industry in customer satisfaction.
One way to compete more effectively is for Sprint to position itself as the premier low-cost provider. Guess who fills that role right now… T-Mobile.
Current T-Mobile clients may not be thrilled with becoming AT&T customers. It’s not exactly a company with a stellar reputation for customer satisfaction. And, it’s just one more door open to Sprint.
Here’s the bottom line…
If AT&T is allowed to buy T-Mobile, it will create a difficult competitive environment for Sprint. But it’s hardly the end of the world.
There are several options available to Sprint right now. And each of them would likely result in a higher share price for the company.
Don’t give up on Sprint. The shares may have sold off sharply, but that just provides us with a good buying opportunity.
Category: Stocks
