Report: Sprint board nixes MetroPCS acquisition at the last minute

Sprint Nextel's (NYSE:S) board rejected a proposal to acquire regional prepaid carrier MetroPCS (NYSE:PCS) Wednesday, according to multiple reports. Sprint would have offered MetroPCS shareholders stock and a small amount of cash, and the purchase price was to represent a 30 percent premium over MetroPCS' share price. Multiple reports said the deal would have valued MetropCS at $8 billion.

The acquisition was to be announced as early as Friday, according to CNBC, which first reported the news, but Sprint's board nixed the action. 

Representatives from Sprint and MetroPCS declined to comment, according to the New York Times.

Interestingly, according to a subsequent report by the Wall Street Journal, the board killed the plan because of worries that the transaction would overstretch Sprint, which is currently spending billions upgrading its network and selling the iPhone. According to the WSJ report, MetroPCS approached Sprint with the deal, and Sprint CEO Dan Hesse took the transaction to the Sprint board for approval. After reviewing the proposed transaction, the board decided Sprint needed to focus on its network upgrade and iPhone deal--the board may have also been worried about repeating Sprint's disastrous acquisition of Nextel. 

Some analysts suggested that the board's decision at the last minute to nix the deal, which Reuters said was a few weeks in the making, reflected poorly on Sprint CEO Dan Hesse. "The question now is what happens to Dan Hesse," Craig Moffett, an analyst at Alliance Bernstein, told Reuters. "It's very unusual for a deal to get this far, for it to be recommended by the buyer's CEO, and for it then to be rejected by the buyer's board."

Despite that perception, both Reuters and the Journal reported, citing unnamed sources familiar with the matter, that there is no split between Hesse and the board, and that at the end of the day, a source told the Journal, they were both on the same page. "There's no rift between Dan [Hesse] and the board," the source told the Journal. "It wasn't like management was off doing its own thing."

Both Sprint and MetroPCS operate CDMA networks, and both are upgrading to LTE network technology, though they operate on different spectrum bands (most of MetroPCS' spectrum is AWS). Sprint has made forays into the prepaid market before; the carrier purchased Virgin Mobile USA in 2009 for around $500 million and continues to offer prepaid service via the Virgin brand.

MetroPCS, for its part, recently added around 197,000 net subscribers in the fourth quarter, bringing its subscriber base to 9.34 million total customers. Sprint counts 55 million customers.

Sprint is in the midst of a multibillion-dollar network upgrade called Network Vision, which will allow Sprint to deploy LTE and shut down its iDEN network while reducing costs. Sprint also has a four-year, $15.5 billion contract with Apple (NASDAQ:AAPL) to sell the iPhone. 

The last major consolidation among the nation's major wireless carriers was Verizon Wireless' (NYSE:VZ) 2008 purchase of Alltel for around $28 billion. AT&T Mobility (NYSE:T) last year attempted to purchase T-Mobile USA for $39 billion, but regulators' antitrust concerns eventually drove AT&T to drop the deal, which Sprint vigorously opposed.

In other Sprint news, the carrier said it will raise up to $2 billion from a sale of notes that will help it pay for its network upgrade and, potentially, additional investments in Clearwire.

For more:
- see this Bloomberg article
- see this Reuters article
- see this WSJ article (sub. req.)
- see this separate WSJ article (sub. req.)
- see this Bloomberg article
- see this New York Times article
- see this CNBC video

Related Articles:
MetroPCS to launch at least one VoLTE handset in second half of 2012
AT&T pulls the plug on $39B acquisition of T-Mobile USA
Sprint buying Virgin Mobile USA for $483M

Article updated Feb. 25 with additional information, and again Feb. 27 with additional information from the Wall Street Journal. Phil Goldstein contributed to this report.

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