Sprint Stock up on BT Sale Rumours

Reuters has reported that shares of Sprint Nextel Corp rose over 3.5 percent last Friday as investors reacted to market speculation the No. 3 U.S. mobile service could be sold to BT, but analysts were sceptical.

Buyout rumours about Sprint have recently abounded as some investors bet its share price, depressed due to market share losses, could make it a sale prospect.

The latest rumour involved BT and pushed Sprint’s shares up 64 cents to $18.65 and boosted option prices, analysts said.

Paul Foster, options strategist at Web information site theflyonthewall.com, said October calls and share prices were up on “unconfirmed chatter” about interest from BT. But Foster also said he was “sceptical” about the talk.

Richard Martin of Information Week however put some perspective on the rumoured BT Sprint deal.

“So why would BT want to acquire a struggling U.S. wireless carrier? For one thing, though it operates as an MVNO selling BT-branded mobile services over the Vodafone network, BT has long been considered as in need of a mobile play to fund its future growth, as its core landline business plateaus. (Only a year ago there was speculation that Vodafone itself might acquire BT.) A trans-Atlantic play might actually make sense for the U.K. telco, which in July reported a 31% increase in first-quarter profits from the same period a year ago.

Second, Sprint and BT’s businesses align in some intriguing ways. Both have staked their future not on voice calls but on broadband Internet connections, including significant investments in WiMax. BT was reported trialing WiMax networks in rural locales as far back as 2004, and Sprint has committed around $5 billion to building out a nationwide WiMax network in the next few years. BT added half-a-million customers to its broadband subscriber rolls in the most recent quarter, for a total of 11.2 million. And the relatively low penetration of broadband in the U.S. must be appealing to BT executives, who will face market saturation in the U.K. in coming years.

Sprint’s debt-to-earnings ratio is relatively low, and its shares have been depressed for a year, making it a more attractive purchase for BT, which has a market cap of $51.1 billion.”