AT&T’s Acquisition Of T-Mobile Makes Sprint
A Good Buy
The Dynamic Wealth Report
March 24, 2011
by Jay Chernoff, Editor
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.
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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.
One of the biggest gainers in the ETF/ETN world this week is iPath Dow
Jones UBS Natural Gas ETN (GAZ). It’s up 2.5% today and 24% over the
last month. GAZ tracks the performance of natural gas by using futures. Natural gas prices are climbing higher because of higher demand
following Japan’s nuclear crisis.
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