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Is the Final Offer for Sprint Nextel Good for Shareholders?

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U.S. stocks are in the red this morning, with the S&P 500 (SNPINDEX: ^GSPC  ) and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) down 0.88% and 0.77%, respectively, at 10:05 a.m. EDT.

SoftBank's final offer
Internet entrepreneur Masayoshi Son and his Japanese telecom group SoftBank appear to have finally bagged their prey with an improved offer for Sprint Nextel (NYSE: S  ) , the U.S.'s third-largest wireless carrier. Does the offer make sense for shareholders?

Softbank's new cash-and-share offer of $21.6 billion is $1.5 billion higher than its previous bid. Better yet, SoftBank lifted the cash component by $4.5 billion. Altogether, the offer values Sprint at $7.65 per share compared to $7.30 previously. Shares are currently trading at $7.33, up 0.3% so far today.

Assessing Sprint Nextel's valuation on the basis of a traditional price-to-earnings multiple isn't possible: The company has not earned an annual profit since 2006 (though it has been free-cash-flow positive throughout that period). However, according to data from S&P Capital IQ, Sprint's enterprise-value-to-EBITDA ratio is at the top of the range in a group of 11 comparable companies -- including SoftBank itself. (Enterprise value is equal to the company's market capitalization plus its net debt. EBITDA -- earnings before interest, taxes, depreciation, and amortization is a measure of cashflow.)

 

Enterprise Value to TTM EBITDA

Enterprise Value to NTM EBITDA

Sprint Nextel

8.6

6.6

SoftBank

7.6

--

Group of 11 comparable companies*, high value

9

6.6

Group of 11 comparable companies, median value

6.3

6

*Includes Sprint Nextel. Source: S&P Capital IQ.

Long-term shareholders of Sprint have had an extremely volatile ride over the past five years, with shares suffering two substantial peak-to-trough declines (40%-plus and 50%-plus) after the market's March 2009 low:

S Chart

S data by YCharts.

However, the last 12 months have been good to shareholders: The shares have rallied 146%. Investors now have the opportunity to realize those gains through SoftBank's offer, which looks fair. Sprint's second-largest shareholder, hedge fund Paulson & Co., shares that assessment, supporting SoftBank's "improved financial terms."

It's time for investors to sell and move on.

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Read/Post Comments (1) | Recommend This Article (2)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 11, 2013, at 11:10 AM, SyDVooh wrote:

    A bidding war is always good for shareholder value. We have a new bid of $7.65. Do I hear $8.50?

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Alex Dumortier
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Alex Dumortier covers daily market activity from a contrarian, value-oriented perspective. He has been writing for the Motley Fool since 2006.

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Related Tickers

7/7/2015 4:34 PM
^DJI $17776.91 Up +93.33 +0.53%
DOW JONES INDUSTRI… CAPS Rating: No stars
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S $4.30 Down -0.07 -1.60%
Sprint CAPS Rating: ***

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