The stock rating of Sprint Corporation (NYSE:S) was downgraded to Market Perform by Colby Synesael, an analyst at Cowen & Co based on his belief that the shares of the third largest wireless carrier in the United States has limited upside even if Softbank Corp (OTCMKTS:SFTBF) (TYO:9984) succeeded in its bid to acquire T-Mobile US Inc (NYSE:TMUS).
Sprint’s merger with T-Mobile unlikely to receive regulatory approval
Softbank Corp (OTCMKTS:SFTBF) (TYO:9984), the majority owner of Sprint Corporation (NYSE:S) was reportedly considering submitting a takeover bid for T-Mobile US Inc (NYSE:TMUS) during the first half of 2014, and it is evaluating possible regulatory hurdles.
The analysts suggested that Sprint Corporation (NYSE:S) might face another bidding competition against Dish Network Corp (NASDAQ:DISH) to acquire T-Mobile US Inc (NYSE:TMUS) given the fact that the two companies had the same takeover target in the past. Sprint and Dish competed in acquiring Clearwire Corp (NASDAQ:CLWR) last year. The wireless carrier won the bidding process.
Synesael believed that the proposed merger of Sprint Corporation (NYSE:S) and T-Mobile US Inc (NYSE:TMUS) is slightly negative. He emphasized that the regulatory approval /integration risk is immediately negative. He also considered the fact that the spectrum/cost synergies would ultimately become positive.
The analysts believed that the United States Department of Justice (DOJ) and the Federal Communications Commission (FCC) would reject Sprint’s merger with T-Mobile because it would reduce the competition in the wireless industry.
Synesael said, “We believe the likelihood of the deal receiving DOJ/FCC approval under the current administration is un-shockingly unlikely.”
Sprint’s top investors aim to give stock a level of stability
The analysts noted that 86% of shares of Sprint Corporation (NYSE:S) are owned by its top five stockholders including Softbank Corp (OTCMKTS:SFTBF) (TYO:9984). According to him, “We believe these investors are largely committed to the long-term vision of Sprint and give shares a pronounced level of stability, but also reduces liquidity for other investors.”
The stock price of Sprint Corporation (NYSE:S) has surged more than 90% since July compared with the 12% gain of the S&P 500. The shares of the company went up by 32% since December 12 compared with the 4% rise of the index. According to Synesael, it is unlikely for the stock to experience additional upside in the near or mid-term.