Mergers & Acquisitions. Sprint-T-Mobile Term Paper

Mergers & Acquisitions. Sprint-T-Mobile - Term Paper Example The prospective merger between T-Mobile and Sprint has evoked mixed opinions among the shareholders of both the companies. T-Mobile USA is a subsidiary of German based Deutsche Telekom AG (DTE). The intention of DTE is to sell off the entity to Sprint and own a major stake in the combined entity. (Saitto et.al., 2011) The merger will be positive for both the companies in terms of the market presence. As of now both the companies are the third and the fourth largest operators. This deal would be beneficial for the shareholders of T-Mobile. The shareholders of T-Mobile are already worried with the recent drop in its share price due to drop in quarter-on-quarter profits. Therefore, any possible merger is an opportunity for the shareholders to sell the shares on a price better that a market price. Moreover, for those shareholders who are not selling off the shares, it is an opportunity for them to get more shares allotted in the new entity. The situation is slightly different in terms of the shareholders of Sprint. Sprint has a strong technology back up to compete with all the competitors in the market. â€Å"Sprint Nextel has partnered with Clearwire to build a 4G wireless network using a technology called WiMax, which is now available in 43 markets.† (ABMN, 2010) Sprint is already committed to pay Clearwire Corporation for building 4G wireless technology. Sprint is bound to pay Clearwire a minimum amount of $850 million in two years. This can even go up based on the growth in data usage. This deal though was spread over for 2 to 3 years will raise the debt level of the company. A potential merger with T-Mobile will further raise the debt level of Sprint. This will be threatening for the financial position of the company. Eventually this can lead to loss for the shareholders. At this point, it is important to look at the financial position of both the companies. T-Mobile has been facing serious decline in its cu stomer base and profitability for some quarters now. All other players in the market are well equipped with sufficient technologies to capitalize the future market. It is difficult for T-Mobile to capture additional customers as they lack the technology strength to do so. Therefore, the customer and profit erosion for T-Mobile will be much faster in the coming years. â€Å"During the first quarter of 2011, T-Mobile saw its revenue hit $4.63 billion, putting it in line with the first quarter of 2010. However, the company’s profit fell over $200 million year over year from $362 million last year to $135 million in the first quarter of 2011.† (Reisinger, 2011) The total customer loss in 2010 alone was 56,000. The second quarter results of the company have shown a decrease in the total assets to $46,291 million from that of $46,299 million. Cash and equivalents have decreased to $109 million from that of $344 million. There is an increase in the total liabilities of the co mpany. Sprint Nextel is better positioned than T-mobile in terms of the financial position. Unlike T-Mobile, Sprint reported first quarterly revenue after 3 years. Sprint was also undergoing a loss of revenue since 2007. (Bloomberg, 2011) The net incomes were on the negative side year on year. The first quarterly revenue was in fact a positive sign that the financial position of the company will pick up. But then the second quarter results were again on the negative side for the company. (Sprint, 2011) These negative revenues have taken a tall on the cash flow of the company. Especially at this stage when the Sprint is