SK Telecom in Talks to Acquire Sprint: Sources

SK Telecom, the largest provider of wireless phone service in South Korea, is in talks to acquire Sprint Nextel, the troubled U.S. wireless carrier, according to people familiar with the talks.

SK Telecom, which is smaller than Sprint , would be joined in any deal by private equity firms that would contribute cash towards the purchase, sources told CNBC.

Sprint shares closed 9.44 percent higher Tuesday. SK Telecom fell over 2 percent in early Asian trade Wednesday.

A deal is not imminent and while the talks are on-going, participants caution that any agreement would at best be weeks away. The board of Sprint, which has been struggling with significant subscriber losses, is divided about whether to sell the company as some of them hold a belief that a turnaround for the company may not be far off, according to people briefed on its position.

Sprint has recently seen some good news as the introduction of Samsung's new phone, the Instinct, has been well received.

Any deal with SK Telecom would have to be friendly. The Koreans have no plans to pursue Sprint should it not wish to be acquired. The talks have not reached a crucial phase, and specific negotiation on price has yet to take place, but they have heated up in recent days.

Again, that does not mean a deal is imminent. Sprint briefly entertained takeover talks a few months back with Deutsche Telekom , but nothing materialized.

Complex Deal

An acquisition of Sprint by SK Telecom would be complex. First, it is smaller than Sprint in market value and therefore needs the inclusion of private equity partners and of course, it is Korean.

While foreign ownership of a wireless provider is not without precedent—Deutsche Telekom owns T-mobile—it is not without regulatory challenges. It would be the largest purchase of a U.S. company by a South Korean firm.

SK Telecom, which has over 22 million subscribers in South Korea and controls roughly half that country's wireless market, does have an American Depository Share listed on the NYSE. It is not clear if it would use cash or a combination of cash and its ADS's to pursue a deal.

SK Telecom and Sprint employ the same wireless technology, and SK Telecom has made it clear it is focused on global expansion.

For its part, sprint is trying to stem a tide of subscriber losses and a decline in average revenue per user and cash flow. It is expected to show that churn declined over the most recent quarter. The company appointed a new CEO, Dan Hesse, late last year.

A spokesman at Sprint declined to comment on what he called rumors and speculation. A SK Telecom spokeswoman said the company was checking on the reports.

Whether or not this deal happens, it is reflective of what is a surprisingly robust M&A market. Bankers tell me that strategic purchases, whether cross-border or domestic, will keep coming.

© 2009 CNBC.com