Two days ago , the Financial Times & The Wall Street Journal announced private equity funds have been talking about a potential buyout of US telco carriers & operators Sprint Nextel (merged in 2004, remember…).

Financial spheres are buzzing. Indeed, the deal, amounting to 75 bn$, would be the single biggest transaction in the history of buyouts, after Hall-of-Fame KKR’s RJR Nabisco, related in Barbarians at the Gate, and more recent 33 bn$ HCA buyout.

Let’s briefly look at the terms of the deal: 75 bn$, that’s roughly a 5.5x EBITDA multiple. Considering the high recurrence of most cash-flows and the media hype the transaction would incur, I’m assuming buyout funds would go for the highest risk, highest leverage debt/cash ratio: 80% debt – 20% cash makes it.

Although interest rates are still dirt cheap, historically speaking, the actual reason why I believe piling up 15bn$ in cash is not do-able is that no private equity fund is actually big enough to firmly lead the crowd. A bunch of funds would have to partner to get things done (maybe 8, maybe 15, I don’t know).

In other words, the logistics of the deal is likely to get too complex too fast; moreover, the perspective of making 8, maybe 15 – I don’t know, private equity partner’ egos agree makes things even worse.

The Sprint Nextel buyout? I’m not buying at all. If I were a decision-maker at a private equity fund, I would go it alone (or perhaps put up a duet) and target a smaller but more, say, humanly feasible deal in the short run. There are loads of opportunities in the long-time bearish telecom marklet. LBO market conditions being still tempting, it would after all be a shame if shareholders didn’t reap the benefits of the recent world stockmarkets rally.

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