Oct. 4 (Bloomberg) -- Sprint Nextel Corp. is in the early stages of evaluating a bid for MetroPCS Communications Inc. that would counter an offer from Deutsche Telekom AG, three people familiar with the situation said.
MetroPCS’s stock rose 3.7 percent to close at $12.69 after Bloomberg News reported on the discussions, rebounding from a decline of as much as 10 percent. Shares of Sprint, the third-largest U.S. wireless carrier, fell 2.1 percent to $5.09.
Sprint is crunching the numbers and holding talks with its advisers to weigh the feasibility of a higher offer, said the people, who asked not to be identified because the discussions are private. The Overland Park, Kansas-based company could decide as early as next week whether to pursue a deal, two of the people said. Sprint’s board is meeting in the next two days to discuss the matter, one person said.
“It would make sense for Sprint to look at MetroPCS,” said Tom Burnett, director of research at Wall Street Access, an investment firm in New York. “The networks are compatible and that might make it easier.”
Deutsche Telekom, Germany’s biggest phone company, announced plans yesterday to merge its T-Mobile USA division with MetroPCS. The move would create a bigger rival to Sprint and market leaders Verizon Wireless and AT&T Inc. Sprint Chief Executive Officer Dan Hesse has said that his company will play a role in industry consolidation, raising speculation that he will step in.
Scott Sloat, a Sprint spokesman, declined to comment on whether the company is evaluating potential counterbids. Andreas Fuchs, a Deutsche Telekom spokesman, also declined to comment on a potential bid by Sprint, as did MetroPCS.
One issue that may hinder a counteroffer from Sprint is the breakup fee, said one of the people. MetroPCS would pay $150 million if it backs out of its current deal. The reverse breakup fee for T-Mobile is $250 million.
Deutsche Telekom is prepared for a counterbid from Sprint and would consider better terms if necessary, according to another person familiar with the matter.
The value of the joint company may be derived from the price of MetroPCS shares, which would account for 26 percent of the whole entity.
Based on the stock’s closing price of $12.24 yesterday, the Richardson, Texas-based company’s equity may be priced at about $3 billion, excluding expected dividends. That implies an equity value of $11.4 billion for the combined company, excluding liabilities, according to data compiled by Bloomberg. Accounting for joint net debt of $21.4 billion, the enterprise value would total about $32.8 billion.
MetroPCS stock will effectively trade as a proxy for the combined entity until the deal closes, at which point its ticker may change, said one of the people familiar with the situation. Sprint hasn’t yet approached MetroPCS, the person said.
Deutsche Telekom CEO Rene Obermann is trying to rejuvenate T-Mobile, the fourth-largest U.S. carrier, more than a decade after the German company entered the American market. The combined entity would have sales of $24.8 billion and 42.5 million subscribers.
That’s still less than Sprint. Even so, the carrier may be so disadvantaged by the combination that it would have to make a counteroffer, Robin Bienenstock, a Sanford C. Bernstein & Co. analyst, said in a note to investors.
Sprint abandoned plans earlier this year to buy MetroPCS after Sprint’s board rejected the transaction, two people familiar with the plan said in February. That deal may have cost as much as $8 billion including debt, they said.
Since then, Sprint shares have more than doubled, making it easier to do a stock purchase. MetroPCS currently has a market value of $4.61 billion, while Sprint is valued at about $15.3 billion.
Sprint was talking to Deutsche Telekom about a deal with T-Mobile even as the German company was also considering buying Leap Wireless International Inc., three people with knowledge of the situation said. Greg Lund, a Leap spokesman, declined to comment on the talks.
The German company started talking with MetroPCS and other potential partners soon after an agreement to sell T-Mobile to AT&T failed in December because of regulatory obstacles, said the people, who asked not to be identified because the process was private. The talks with MetroPCS accelerated after it reported better-than-expected second-quarter earnings on July 26, the same people said.
Sprint also held earlier discussions with Deutsche Telekom about buying T-Mobile, prior to AT&T offering to acquire the unit for $39 billion in March 2011, people with knowledge of the matter said at the time.