Monday, December 3, 2007

Sprint: One Bad Decision After Another.

What is it going to take for these guys to get it right?

Sprint (S) rejected an offer by South Korea's SK Telecom and private-equity firm Providence Equity Partners to invest $5 billion in the company and to install NexTel's former Chairman, Tim Donahue, as chief executive officer.

Mr. Donahue's group proposed a deal in a Nov. 10 letter to Sprint's board. The board didn't grant Mr. Donahue or the investors a meeting before declining the offer, these people said. It makes sense, with shares down 36% since early June and subscribers fleeing faster than the Saigon evacuation after Vietnam, why even consider an alternative or hear what they have to say?

Let's not forget that Mr. Donahue, who was CEO of Nextel negotiated its sale to Sprint in 2004 for $35 billion and became chairman of the combined company after the merger closed in 2005. He stepped down late last in 2006. The proposal said he would return as CEO and would bring in a full slate of executives to handle marketing and operations. Sprint's fortunes have decline precipitously since his departure.

In short, this guy knows what he is doing. He took NexTel from a bit player to a major force. Maybe current management longs for those good 'ole days?

Some Sprint directors say Sprint bought a wireless carrier with a "creaky network that needed major upgrades and a user base susceptible to being lured by competitors." If that is so, why was NexTel adding subscribers by the bucket full at the time of the merger and if the network issues are true, why pay $35 billion for it? NexTel users became "susceptible top being lured" only after being treated like an inconvenience by Sprint customer service reps.

The Donahue group said in the letter to the board that it would invest $5 billion or "potentially substantially more" in the form of securities convertible into equity after some period of time at a stock price 20% higher than Sprint's current price as well as a noncash dividend of 3% to 4% and said they were prepared to sign a definitive agreement with Sprint within 10 days. In short, they were putting their money where their mouth was.....

Activist investor Ralph Whitworth, who before former CEO Gary Forsee quit had threatened a proxy fight for board seats unless Sprint directors immediately dealt with the company's leadership issue, praised the Sprint board. "I don't think the CEO job ought to be up for auction," said Mr. Whitworth.

Mr. Whitworth's Relational Investors LLC owns just under 2% of Sprint's shares. "It's bad business to link minority investments with CEO selection decisions," he continued. "If I had been a board member, it would have been dead on arrival. The board did the right thing."

HYPOCRISY!! So, I guess it is ok to link boards seats to a minority investment Ralph? Am I the only one who caught that? Now, we should listen to Mr. Whitworth, after all he is the one who lead the charge at Home Depot (HD) to get rid of then CEO Nardelli, sell supply and take on massive debt to fund an ill-conceived share buyback. How did that work out Ralph?

I fell bad for Sprint shareholders, it will be a long hard slog with these guys at the helm.

The only was this makes any sense is if they are going to sell to Google (GOOG) soon which given the news Google is officially bidding for wireless spectrum, is less likely every day.

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