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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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5 replies on “Sprint: One Bad Decision After Another.”

Mr. Sullivan, perhaps you should investigate why Mr. Donahue stepped down before you begin singing his praises. And as for the deal he negotiated for his company Nextel? Let’s just say the $35B he negotiated and his departure as chairman of the merged company come from a common personality trait.

What is that trait? good dealmaking?

not for nothing but the nextel he built was a great organization.

i am also not “singing his praises” as you say so much as bashing those currently making decisions. listening to whitworth for one is a losing proposition for management.

perhaps if he was allowed to run things at sprint as he did at nextel, they would not be in the mess they are today. the sprint “faction’ of the company has run it into the ground.

If Nextel was doing so well, why would they agree to a merger in which Tim Donahue would step down? They knew disater was going to strike with their network imploding. Donahue did a great job with a niche product facing limited competition. It is different with this large company, with a multitude of products, wireless and wireline and not just push to talk technology. And the Sprint “faction” that you talk about – most of the corporate leadership currently at Sprint are former Nextel executives. You comment more out of uneducated opinion then intellectual knowledge.

where to start….

first. the merger was about scale, larger should be better..

donahue did not step down to the end 2006..

leadership… the board is split and so is management. that is the problem. they do not even have a central HQ.. they actually have never fully “merged” on that level

Sprint bought an upstart company that was wildly popular. Nextel need sprint’s $$ to take their company to the next level. great plan horrifically executed…

when donahue was at nextel he thought and behaved as an owner, this deal would allow him to do that again.. no reason to think he would not be an improvement..

thank you for the insults… feel better?

I do feel better. However, they were not insults. I just stated that you seem to project opinions with a limited knowledge of that to which you speak. Although, I do agree with some of your response statements.

Not larger is better. The merger reasons where that Sprint wanted the niche PTT solution that Verizon and T-Mobile were building. A desire to beat the competitors to market for once. Nextel needed more capital to enhance their soon to fail network.

Before the merger was finalized, the rumor was that Donahue would step down soon after the merger was complete. His annoucement to leave in 2006 was no surprise.

I agree with you regarding the split leadership. The CFO(acting CEO), CIO, former CMO(with 3 new brand launches since the merger), President of Sales and more executives are all former Nextel executives who were under Donahue. They have been part to the current situation Sprint is in.

I do agree that their merger plan was executed terribly. Nextel should have just been wrapped into the product set. That’s all.

Donahue managed a small company that sold snow tires (PTT) to people who needed snow tires in locations where there was snow. Easy to execute. Get into the world of selling cars(Voice over IP, wireless, Long Distance, Managed Security solutions, etc) it gets more complicated and much more competitive. That is why I doubt his leadership would turn things around. It is a different game.

My vote is with the Board in seeking someone outside the former Nextel and Sprint circles and stopping the confused internal leadership issues.

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