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Sprint Is Racing for a Showdown

Duncan Parker

Sprint (NYSE:S) has enjoyed a rally of nearly 175% from its February 2012 double bottom where common shares nearly 'Benjamin Buttoned' below $2. Today, shares are holding above $7 in light of last week's "aggressive" counter-bid by Dish Network (DISH). Initial bidder, Japan's Softbank (TYO:9984), has alerted short sellers that it doesn't intend to let Dish Network's "inferior" bid pull Sprint's feather from its hat -- not without a rock fight. The two companies have taken to the street in a very uncommon battle royale; a fight to out-cheapen shareholders in a time where would-be acquirers are comfortable paying up for flagship franchises (i.e., Heinz (HNZ)).

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There has not been an overabundance of back-slapping on the Street in calling Sprint's bull campaign roller coaster-like return to former support from two years ago. It didn't take a stroke of genius to bottom-fish in the name; sitting number-three in the nation's nobly regulated telecom space, Sprint was the smart money's bet that AT&T's (NYSE:T) and Apple's (AAPL) iPhone monopoly would fizzle – and that 4G/LTE infrastructure could be implemented as the category-leading technology before a reversal in record low interest rates had an opportunity to squeeze Sprint's debt load or the dividend payout of its competitors in this leverage-sensitive sector. Perhaps the lack of excitement around the potential merger is directly correlated with a quiet frustration – sellers' remorse.

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An eventual counterbid by Softbank, Dish, or a newcomer wouldn't exactly catch the Street off guard. The daily chart of Sprint is putting in bull-pennant consolidation, suggesting a move to the $9 handle could be in the cards. Anecdotal sources have suggested merger-arb funds are positioned to clip more than a few pennies per share before invitations to a shotgun wedding are in the mail.

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Taking a technical lens to the long term daily chart of Sprint, price action seems stunted at current levels – it almost appears to be an incomplete capitulation. Should $9 be acquired, other technical triggers suggest $11 - $12 could be taken shortly thereafter. Depending on how/if this occurs, a final target near $18 looks to be the proper handle to retire the ticker; $18 places a valuation on Sprint just above $50 billion USD, taking Sprint firmly out of the grasp of Dish and Softbank. Who, then, could be an ultimate buyer?

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Two cash-rich companies come to mind, and both are no stranger to one another. Google, Inc. (GOOG) placed a huge vote of confidence in Sprint's hometown headquarters last year when announcing Kansas City had been chosen for the groundbreaking rollout of its uber-fast broadband product, Google Fiber. Perhaps another potential bidder (who not so coincidentally decided to issue $17 billion in fixed/floating rate debt on a whim over the weekend) is Apple. Contemplating a final suitor worthy of a franchise like Sprint, it's hard to understand why it would go slumming with Dish or Softbank when both Google and Apple have an open gap in telecom – and a reason to be there.

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