Sprint Is Left Beholden to SoftBank and Son's Plan B
(Bloomberg Gadfly) -- Good luck, Sprint Corp. You're going to need it.
This year has been an emotional drain for shareholders of the Overland Park, Kansas-based wireless carrier, which has lost value practically by the day. Its Japanese chairman, Masayoshi Son, repeatedly dangled a salve in front of them -- a merger with T-Mobile US Inc. -- only to yank it away on Saturday, seemingly for good this time.
Now, investors are being asked to put their trust in the nebulous vision of a billionaire halfway across the world who's talking in terms of centuries, while they can't even rest assured of Sprint's operations quarter to quarter. The company hasn't made money on an annual basis in a decade -- and counting. Its free cash flow from the past 12 months is barely positive, and its $38 billion debt hurdle easily clears the value of its equity.
And that's before the stock officially begins trading Monday with this new reality.
We're back to the unanswerable question: What is Sprint worth? Or rather, how low can it go? BTIG Research's Walter Piecyk, the most bearish of Sprint's analysts, has a $3.85-a-share price target, implying as much as 42 percent downside from Friday's closing price. And if that sounds improbable and overly pessimistic, Sprint's been there before -- it was only 22 months ago that the stock collapsed to a low of $2.45. In trading before the market opened Monday, Sprint shares dropped 10 percent to $6 apiece.
It's managed to squeak by since then, slashing costs and offering promotions (lately desperate ones) to attract customers, even as its brand value eroded. The frequently renewed speculation of a deal with T-Mobile, which had been eating Sprint's lunch along the way, certainly helped buoy Sprint's shares.
On a small positive note, Sprint on Sunday announced a deal with Altice USA, under which the cable provider will sell wireless service using Sprint’s network, and Sprint will use Altice’s broadband infrastructure to strengthen its own network. It sounds similar to the agreement Comcast Corp. has with Verizon Communications Inc. For Sprint, it will likely be a little bit of a lift, but Sprint needs more than a bit.
Son, whose highly indebted SoftBank Group Corp. is Sprint's largest shareholder, has talked of a 300-year plan for his technology and telecommunications empire, which includes ARM Holdings Plc, the chipmaking giant that SoftBank acquired about a year ago for $32 billion. SoftBank said Sunday that it intends to buy more Sprint shares on the open market, adding that its stake won't top 85 percent. It later reported earnings that beat analysts' estimates, but Gadfly's Tim Culpan breaks down how SoftBank's already volatile profits will get a whole lot more bumpy.
I will say, for all those up-and-coming business leaders (mainly in Asia) being labeled as the next Warren Buffett, when Son speaks he is certainly convincing and amiable in a way not unlike Buffett is (check out this recent interview for Bloomberg). But is Son really a visionary? Or is he a wannabe, haphazardly spending his and outside investors' money, seeing what sticks?
Son recently raised $93 billion for his Vision Fund from a variety of large institutional backers such as Apple Inc. and the Public Investment Fund of Saudi Arabia. There have been some questions about whether the Vision Fund could hypothetically be used somehow in connection with helping Sprint, but that's unlikely given that the fund's pitch was for cutting-edge technology like the internet of things and artificial intelligence. Sprint does have the largest swath of 2.5-gigahertz spectrum licenses in the U.S., which is largely what drew Son to the company.
But truth be told, it's more likely that his Vision Fund and growing list of ambitions serve as distractions for his oversight of Sprint in what is becoming a display of poor corporate governance. The hope now will be that Son is willing to plow a lot more money into improving Sprint's network so that it can catch up with its much stronger rivals, if it is going to go it alone. I guess it's also possible that Son saw another attractive deal opportunity, that perhaps one of the potential partners he rang over the summer (John Malone? Warren Buffett?) re-emerged. Then again, I'd be shocked.
What is likely is that T-Mobile teams up with someone else. It's by far the most appealing candidate right now, while the business's impressive growth run is also probably going to start slowing from here, making it a good time to join forces with someone else. I've suggested that T-Mobile and Charlie Ergen's Dish Network Corp. would go well together and be a chance for Dish's Sling TV streaming business to thrive with a better brand. Meanwhile, Dish is sitting on a load of valuable spectrum that isn't being used as its satellite-TV business continues to lose subscribers. Charter Communications Inc., Comcast Corp. and others could also look at T-Mobile.
As for Sprint, look out below.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.
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