Sprint Board: CEO? What CEO?

By Trevor Gilbert , written on February 24, 2012

From The News Desk

The word on the street today is that Sprint and MetroPCS are in the middle of a long series of negotiations to merge the two companies, with Sprint offering $8 billion for MetroPCS. The deal was set to go, and would be announced later today. MetroPCS was on board, Sprint CEO Dan Hesse was on board, and the Sprint Board of Directors was on board.

That is, Dan Hesse assumed they were on board.

They weren't.

Hours before the announcement, the Board of Sprint backed away from the deal, according to CNBC's David Faber. Of course, when such a big machine is in motion, it is astounding that the Board pulled away at this moment in time. Keep in mind, Sprint CEO Dan Hesse had already signed off on the deal after months of negotiations, only to have the Board pull the rug out from underneath him.

The question, then, is what could have caused the Board to change its mind at the last minute. Well, there are a couple of scenarios, and none of them are especially rosy for Hesse. Keep in mind these are the things that would cause the Sprint Board of Directors to back away from the deal at this moment in time.

A CEO Change

When such a big deal is going down between carriers, there are many parties involved. You have Sprint, and you have MetroPCS. You need to have plans in place to streamline operations and to trim redundancies. Then you have the government, with the Federal Communications Commission.

Do you know who has to manage all of these various pieces and make sure the deal goes through? The CEO. Know what would be awful for a merger if it happened right in the middle of it all? If the CEO of the buying company was forced out by the Board.

Of course, the Board has yet to do this or announce that they will be doing this, but it is certainly a plausible reason. The evidence? If the Board feels so little of his signature on merger paperwork, they likely think very little of him as CEO of their company. When that happens to you as a CEO, you want to start filling your frozen banana stand.

Keep in mind though, that replacing the CEO doesn't necessarily mean they want to cancel the merger, but rather that they don't want Hesse in charge of the merger (or a part of it at all). The merger could still very much so be on the table at this point.

Strategy Shift

The one thing everyone can agree on is that Sprint needs to do something to remain competitive in the phone market. Sure, they're ahead of other carriers in the market, but they are in the awkward stage of not being as big as the giants (Verizon and AT&T), while also not as small of a carrier like its competitors below them (T-Mobile, MetroPCS, etc.)

In this situation, the CEO and the Board would likely work together to find a new path forward. Hesse thought he had found a way in the form of MetroPCS, but clearly the Board disagrees. The second possible explanation? The Board has something else in mind (and something better). Whatever it is, it must be much bigger and much better to force them to ignore the requests of the CEO.

In the end, the Board is clearly up to something here, and it is something that CEO Dan Hesse was uninvolved in. That, combined with the fact that the Board completely ignored Hesse's request for a merger points to a future where Hesse is either kicked out, or sidelined in a new strategy.

Either way, something is afoot at Sprint, and you can be sure we'll update when we finally figure out what is going on.