Sprint: Low Valuation Makes It An Enticing Acquisition Target

| About: Sprint Corporation (S)

I expect that Sprint Nextel (NYSE:S) will be acquired within the next few months with its valuation being so low. There are many companies that can both afford and utilize Sprint to expand a company to higher profits. And although I believe that Sprint will most likely double, possibly more, over the next year, I believe the company will be offered a deal that will be too good to pass up in the near future. Therefore I have created a list of three companies that I believe could and would acquire Sprint and I believe that one of these three companies will purchase Sprint at some point in the near future.

Sprint Nextel is currently trading at $2.38 with a market cap of just over $7 billion. The company has reported $33.26 billion in revenue over the last 12 months which is nearly $1 billion more than what it accumulated in 2010. The company's made strides in the right direction in 2011, after 5 years of fundamental hardships, and is now offering the iPhone to its customers with unlimited data and improving its network to a higher standard. The company's stock is trading particularly cheap compared to its book value per share of $4.36 while its competitors, both AT&T (NYSE:T) and Verizon (NYSE:VZ), trade at least 50% greater than its book value per share. I believe the fact that Sprint trades 50% lower than its book value makes it very attractive as a potential acquisition to a company that's looking to expand or enter the communication services industry.

Sprint could be acquired for pennies on the dollar compared to what it could mean for several companies future growth. There are many companies that would want to add a communication provider to its services; improve its market share in communications; or create a segment in communications, and could do so for what could be a fairly cheap price. The issue in purchasing Sprint is its debt of more than $18.5 billion and its many offices that operate with a net loss. However, the company is an established service throughout the country with access to more than 100 million people. In addition to its broad service and its $33.26 billion in revenue, the company also has $4 billion in cash, and nearly $50 billion in assets. Overall, for a premium of book value, or slightly higher, Sprint would be a steal for the many companies that can afford to take on its debt and utilize its services for growth. Therefore I have listed a few companies that I believe could benefit from acquiring Sprint and that can afford to purchase the company.

After AT&T's attempt to purchase T-Mobile an obvious suggestion may be that Verizon would have interest in purchasing Sprint. And although it's a possibility I personally don't believe this would occur, especially considering the events that have taken place with AT&T trying to purchase T-Mobile. AT&T probably never imagined that the Department of Justice would rule that the acquisition would result in lost jobs and ultimately hurt the consumer. AT&T was so certain of its proposed acquisition that it even agreed to pay T-Mobile $4 billion if the deal were to not close, which is looking more likely everyday. Therefore, I doubt Verizon would even attempt or consider purchasing Sprint. Because it would surely cost the company too much uncertain money and although it would give Verizon an advantage in the communication industry the likelihood of the Department of Justice approving the acquisition is unlikely.

The most exciting of possibilities would be Google (NASDAQ:GOOG) to purchase Sprint. The company's been on a buying frenzy as of late with its purchases of Zagat and Motorola Mobility (NYSE:MMI). The company has made major strides over the last year to compete long-term with Apple and strengthen its Android operating system. The purchase of Motorola Mobility gives the company a handset manufacturer for its Android operating system, a luxury it didn't have, along with more than 17,000 patents. I believe that a purchase of Sprint could separate Google from all competition and result in the largest valuation in the market within a few short years. Google is the leader in advertising and could most definitely market Sprint in a way that would bring record sales in a short period of time. And Google has the cash, financing, and balance sheet to pull this off with little damage to its fundamentals progress. I believe it would be a great purchase, yet Google has many ventures and operates in several segments. Therefore I am unsure if the company would be willing to place all its eggs in one basket and focus solely on its communications segment with a purchase of Sprint. I believe its an interesting possibility and I wouldn't be surprised if it happened, but in all likelihood I doubt Google is the company to purchase Sprint.

In my opinion, if another communication services company can't purchase Sprint and Google doesn't desire to purchase the company then it only leaves one possibility, and that's Dish Networks (NASDAQ:DISH). I believe that by next year Dish Networks will own Sprint Nextel. The company's CEO has already expressed interest in the company and has shown interest to enter the communications industry. This move would separate Dish from Directv (DTV) and since the CEO has already shown that he's willing to purchase a company on sale, Blockbuster, I wouldn't be surprised if this occurs soon as Sprint could be purchased at a bargain price. And personally, I don't believe this possibility is too far fetched. Both Verizon and AT&T have attempted, with some success, to enter the cable television industry, therefore why can't Dish capitalize on communications? If Dish were to pursue Sprint it would be great for both companies: Dish already has an edge on Directv (DTV) with its Blockbuster service, but if it were to add Sprint's customers and vise versa then both companies would grow at a remarkable rate by offering a service that is so complete that no other company would be able to compete.

With Sprint trading at $2.38 the company could be purchased for a fairly cheap price and the acquirer could capitalize on its improving network and its arrival of the iPhone which is sure to increase sales. I believe that each of these companies could possibly acquire Sprint, however Dish has the most to gain and presents the most realistic opportunity. If AT&T can't purchase T-Mobile then I'm sure it would be difficult for Verizon to purchase Sprint and I am not sure that the company would take the chance. Google makes sense and could utilize the company to fully develop its communications segment, and would be the first company to provide an operating system, manufacture its own handsets, and provide the service. If Google were to acquire Sprint it could separate the company from Apple and assure long-term sustainable growth within the industry, yet I believe it will most likely go a different direction and would be to a high of a price for a company that just paid a premium on MMI. To me, Dish makes the most sense, and with an already well established cable segment it could quickly become one of the largest most dominating companies in the market. All areas of this topic are speculative and is based on what I believe makes sense for a company that I expect to be acquired. Because I am almost certain that with Sprint's low valuation, encouraging developments, and the overall competitiveness within each industry, Sprint is a near guaranteed acquisition in the near future.

Disclosure: I am long T, S, GOOG, DISH.

Additional disclosure: As with any investment, due diligence is required. The opinions in this article are not intended to be used to make a particular investment or follow a particular strategy.