Mergers can be successful if the merging firms retain focus on better outcomes (Swerdlow et al. Dutsche Telekom spent $30 billion to get VoiceStream Wireless- which is now T-mobile USA and the deal has been beyond limits for Deutsche Telekom, wich plans to get into $20 billion to $30 billion deal with Spirit. Te equity value of T-mobile is $26. 8billion and equity value of Sprint is $19. Srint’s total market value is $13. 8billion and it carries $20 billion debt load. Srint suffered losses of $8. 6billion from - 2010 which further complicates its position.
Srint owns debt to equity ratio of $5 billion and purchase of T mobile may add more debts where the sale price of T - mobile is estimated to be $ 39 billion. Srint outsourced major part of its customer contact and networking work, ad merger with T-mobile will prevent expenses on outsourcing. Te chance of success in merger increases if early planning for integration of physical and human assets has been made. Mny mergers are said to failed on papers but has saved a worse situation (Meckstroh ,1998, pMerger of Sprint and T-mobile will beneficial for shareholders as it will improve customer base and competitive advantage.
Hu et al. 2000) explains mergers are profitable for shareholders on average even with longer time horizon (especially the cash mergers). Gnerally, mrgers produce an appreciation of net stock value which is small, o 0 to 1% which are the primarily the gains which shareholders get (Andrade, Mtchell, &Stafford, 2001). Sleifer and Vishnay (2003) gave explanations why acquirer shareholder appears to lose as a of mergers.
I is believed the share of some companies is overvalued for real assets and post merger it shows decline in share prices. Oervaluation hypothesis of Shleifer and Vishny (2003) explained how mergers generate wealth when a share become overvalued and exceeds the present discounted value and the overvalued share is exchanged with corrected value of share of other firm. Mrger of Sprint and T-mobile is tricky situation where the two companies have different market advantages and they use different wireless technologies in their networks. Dutsche Telekom’s T-Mobile Sprint have been losing customers and Sprint reported also of $36 billion on takeover of Nextel in 2005.
Iteroperability problems - The combination of four different types of wireless operating systems will increase significant interoperability problems. Srint WiMax...
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