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Strategies & Market Trends : Speculating in Takeover Targets -- Ignore unavailable to you. Want to Upgrade?

To: richardred who wrote (546)	12/11/2004 9:38:01 PM
From: richardred	Respond to of 7265

Mergers And Acquisitions Life With Sprextel David M. Ewalt, 12.10.04, 6:10 PM ET NEW YORK - Are Sprint and Nextel tying the knot? Neither company is talking, but published reports say the deal is well on its way. Observers seem to agree the union makes sense, and that further consolidation of some sort in the wireless market is a foregone conclusion. So assume for a moment--and this is a big assumption, because any negotiation like this can always fall apart--that all the details work out, and sometime next year a new "Sprextel" or "Nexint" strides onto the marketplace. What would the deal mean for the other players in the mobile industry? Sprint (nyse: FON - news - people ) currently comes in a distant third in the rankings of U.S. wireless carriers, with about 17.3 million customers, and Nextel (nasd: NXTL - news - people ) is way back in number five, with about 14.5 million subscribers. A combined venture would be a much more imposing competitor, boasting 32 million customers, and placing it closely behind number two Verizon Wireless, with 42 million customers, and number one Cingular Wireless, with 47 million subscribers. Those three companies alone would possess about 75% of the US mobile market, but consumers probably don't have to worry much about lack of competition. With T-Mobile USA--a subsidiary of Deutsche Telekom AG (nyse: DT - news - people )--also in the picture, the US would still have four big carriers fighting for share as the cellular marketplace begins to reach saturation. Already, 80% of American adults between the ages of 25 and 54 currently own a cell phone. "The resultant four national players would continue to exert weak pricing power," says a new Deutsche Bank research note. The first casualty of this new marketplace could be T-Mobile. As Merrill Lynch said on Friday in a research note, the company would be "locked into the number four position among the national carriers, with no obvious path outside of organic growth." After a couple of years, there just wouldn't be much more room to expand, putting the company under increasing pressure. As time passes--and as the company has to deal with the requirements of building up its network to meet high-speed 3G standards--the pressure could be too much to bear. A consolidated marketplace would also particularly press Verizon Wireless against the rails. The company--a joint venture of Verizon Communications (nyse: VZ - news - people ) and Vodafone Group-- is still reeling from getting knocked out of first place after Cingular--a joint venture between SBC Communications (nyse: SBC - news - people ) and Bell South (nyse: BLS - news - people )--completed its acquisition of AT&T wireless in October. A combined Sprint/Nextel would make life much hairier for Verizon, not only because of its size, but because of the new company's strong base of corporate clients. "It would have especially great potential in the business services marketplace," says Forrester analyst Lisa Pierce. At present, 80% of Nextel subscribers are on corporate contracts, due largely to popularity of its push-to-talk cellular service. Sprint has a smaller but still very strong business services segment, and its white-collar corporate base compliments Nextel's more blue-collar customers. A merger would also have significant ramifications on the hardware side of the industry. Nextel currently operates its cellular networks using Motorola's (nyse: MOT - news - people ) iDEN technology, making it the odd man out amongst the CDMA and GSM networks run by all its competitors. In merging with Sprint, Nextel would likely abandon iDEN in favor of CDMA, taking a huge chunk out of Motorola's business and leaving the equipment vendor with only a handful of smaller customers around the world. But for Sprint and Nextel, a merger is probably a good move. They plug the holes in each other's business, and the combined company will be a strong counterpoint to market leaders Verizon and Cingular. Investors stand to gain not only from the deal itself, but from the eventual profits of a stronger, more competitive carrier. As for customers of an all new Sprextel or Nexint, there will probably be a few bumps and bruises as the companies integrate forbes.com