Sprint shares rose 2.7 percent, to $25.10, yesterday after the Wall Street Journal reported that Verizon might bid for Sprint. The increase slightly bolstered the value of the Sprint-Nextel merger. Nextel shares closed unchanged yesterday at $29.99.
The report said Verizon had received approval to make a bid for Sprint from Vodafone Group PLC, the British telecommunications firm that holds a 45 percent stake in Verizon Wireless. Verizon declined to comment. Vodafone denied the report, saying it had not had talks with Verizon about acquiring Sprint. "We're very happy with our 45 percent stake in Verizon Wireless," spokesman Bobby Leach said.
Nonetheless, Wall Street buzzed yesterday with speculation about a possible move by Verizon. Analysts have disagreed about whether federal regulators would sign off on a Sprint-Verizon combination. Analysts at Goldman Sachs argued in a research note that at the very least, such scrutiny would slow a deal.
Others cited the experience of Cingular and AT&T as evidence that federal officials would not block such a merger. Any conditions imposed by regulators would be "minor," said Scott C. Cleland, chief executive of the District-based Precursor Group, an independent research firm specializing in telecommunications. "I would be very surprised if [a Verizon-Sprint deal] ran into significant trouble," he said. A Verizon-Sprint coupling "is compelling on multiple levels," Cleland said.
Blair Levin, an analyst with Legg Mason, estimated that if a Verizon-Sprint combination won approval, the new company would probably have to divest some of its wireless spectrum in New York, Los Angeles, Chicago, Philadelphia, the Washington area, Baltimore and Austin, among other markets.
Levin argued that while a merger offers the potential for significant synergies, Verizon does not need Sprint to grow. A "deal is unnecessary for Verizon's continued wireless success and would face significantly greater risk that the deal would be blocked by the government than the risk that a Sprint-Nextel deal would be blocked by the government," Levin wrote.
Analysts said that while a merger was not essential for Verizon, it was crucial for both Sprint and Nextel. Sprint is bigger but less profitable than Nextel and is eager to sign up Nextel's higher-paying business customers, who like the company's push-to-talk service, which instantly connects callers at the touch of a button.
If Nextel stood alone, it would need to build a new advanced wireless network, which could cost the company $2 billion to $3 billion. In a merger it could share the network that Sprint is already building at a similar cost.
The Sprint-Nextel deal was structured to give Sprint shareholders a slight majority, sources said, so that the Internal Revenue Service would treat the spinoff of the local phone lines as a tax-free transaction.
Staff writer Annys Shin contributed to this report. Ben White reported from New York.