May 5 (Bloomberg) -- Sprint Nextel Corp., the third-biggest U.S. mobile-phone carrier, rose 11 percent in New York trading on reports Deutsche Telekom AG is analyzing a possible takeover offer.

A combination could make the German company's T-Mobile USA unit the biggest wireless company in the U.S., the Wall Street Journal said yesterday. Sprint's share price drop and the strong euro make the transaction a bargain, Der Spiegel said over the weekend. Der Spiegel first reported on the possible takeover May 3, without saying how it got the information.

Interest in Sprint, with a market value of more than $22 billion, may shore up the stock after a 34 percent slump this year. Overland Park, Kansas-based Sprint posted a $29.6 billion loss in 2007 as customers moved to larger rivals AT&T Inc. and Verizon Wireless. Last week, Sprint had its credit rating cut to junk by Standard & Poor's.

``Deutsche Telekom would come under fire from the rating agencies if it made such an acquisition,'' said Frank Schneider, an analyst at alpha Wertpapierhandel in Frankfurt. ``Big takeovers are always seen with criticism and Sprint hasn't been doing well recently.''

Deutsche Telekom spokesman Andreas Leigers and Sprint spokesman James Fisher both declined to comment. Germany's Finance Minister Peer Steinbrueck told reporters in Berlin today that Deutsche Telekom's acquisition plans in the U.S. were ``rumor.'' The German government holds 31.7 percent of Deutsche Telekom.

Sprint rose 83 cents to $8.72 at 4 p.m. in New York Stock Exchange composite trading, the biggest jump since March 20. Deutsche Telekom fell 18 cents, or 1.5 percent, to 11.61 euros in Frankfurt.

Chance of Merger

Citigroup Inc. analyst Michael Rollins said he expects the shares to reach $9 in the next year, up from a previous target of $8. There's a 25 percent chance for a merger or acquisition in the next 12 months, he wrote. The New York-based analyst recommends holding on to the shares.

A purchase isn't likely because combining the three different wireless-network technologies the companies use would be difficult, said Michael Nelson, an analyst at Stanford Group Co. in New York.

Sprint uses code-division multiple access technology and Nextel's push-to-talk platform, while Deutsche Telekom's T-Mobile network relies on the global system for mobile communications.

``You really cannot underestimate the level of complexity that that entails,'' said Nelson, who recommends investors hold on to Sprint shares. ``There is a significant amount of integration risk.''

$1,000 a Customer

Sprint is valued at less than $1,000 a customer based on a study of takeover scenarios by Merrill Lynch & Co. published in March, Der Spiegel said. Sprint has about 54 million customers and generates about $40 billion in sales.

Deutsche Telekom may decide not to pursue a deal, and any bid could be weeks or months away, the Wall Street Journal said, citing unidentified people familiar with the matter.

Sprint may report a net loss of $416.6 million in the first three months of the year, the average estimate in a Bloomberg survey of analysts. Declining earnings may trigger debt provisions allowing creditors to demand early repayment.

The carrier's corporate credit and senior unsecured debt ratings were lowered two levels to BB from BBB- because of its deteriorating operating performance, S&P said last week.

Possible Downgrade

Standard & Poor's put its long-term rating for Deutsche Telekom on review on March 17, indicating a possible downgrade, after the company announced plans to buy 20 percent in Hellenic Telecommunications Organization SA for 2.5 billion euros. Fitch Ratings also placed its rating under review for a possible cut.

Deutsche Telekom's debt totals 33.8 billion euros, according to Bloomberg data.

``In case of a more comfortable debt position and easier debt markets, a Sprint acquisition might make sense, but not in the current environment,'' Frank Rothauge, an analyst at Sal. Oppenheim Jr. & Cie. in Frankfurt, said in a note to clients. ``We assign just a 20 percent probability to a takeover of Sprint Nextel at the current point in time.'' Rothauge has a ``buy'' recommendation on Deutsche Telekom shares.

Merrill Lynch suggested in a report dated March 6 that the ``case for Deutsche Telekom acquiring Sprint increases,'' citing currency and share-price movements. The brokerage has a ``sell'' recommendation on Deutsche Telekom's stock.

`Not Aware'

``We are not aware of any discussions between the parties,'' London-based Merrill Lynch analysts including Graham Ruck wrote in the report.

Regulators ``would have a very close look at such a deal'' as the number of operators would decline to three from four, making approval ``questionable,'' Andreas Heinold, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart, Germany, said in a note published today. Landesbank Baden-Wuerttemberg has a ``buy'' recommendation on Deutsche Telekom's stock.

The U.S. government might also resist a foreign company controlling the largest mobile-phone operator as telecommunications is an area ``considered critical under Homeland Security,'' Heinold said. Also, ``an integration of networks isn't possible in the foreseeable future due to different technologies,'' he said.

To contact the reporter on this story: Ville Heiskanen in New York at vheiskanen@bloomberg.net; Cesca Antonelli in Washington at fantonelli@bloomberg.net

Last Updated: May 5, 2008 16:10 EDT