In addition, Dish is not equipped to absorb these large losses.
|Net Income (millions $)||637||1,516||985||636||903|
|Stockholders’ Equity (millions $)||72||-419||-1,133||-2,092||-1,949|
From 2008 to 2012, Dish’s largest net income was $1.5 billion. Sprint’s smallest loss was $2.4 billion. Simple math dictates that the merger would result in an unprofitable company. Also, Dish’s equity is only $72 million. Thus, Dish’s investment cost will likely be much higher than $25.5 billion because it will have to find a way to rapidly turn Sprint’s business around. This means restructuring charges. Furthermore, a turnaround usually takes a few years to work, so a Dish Sprint combo will likely bleed money for at least a few quarters.
Also, while spectrum holdings are valuable, owning more spectrum rights does not make a company automatically more profitable. Just look at Clearwire Corporation (NASDAQ:CLWR), which owns more spectrum than AT&T or Verizon Communications Inc. (NYSE:VZ), but has been losing money for years. Also, Dish already provides content on the go with its DISH Network Corp. (NASDAQ:DISH) Anywhere service. Thus, Dish is gambling that bundling its services with Sprint will bring in more subscribers. There are other places for consumers to get content so this a risky bet. Overall, while a Dish/Sprint merger would have some good assets, this proposed merger has the potential to turn into an ugly mess and is not worth the risk.
Alvin Gonzales has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.