Nextel: McCaw's Trojan Horse???
FOOL PLATE SPECIAL: An Investment Opinion
Nextel: McCaw's Trojan Horse?
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One of AT&T's few bright spots -- its wireless division -- has not seen the separation of valuation it thought it would get when it IPO'ed as a tracking stock earlier this year. Now the company is getting anxious, looking to a merger with Nextel to solve some of its problems. Unfortunately, Nextel works on an incompatible standard. More unfortunately, AT&T Wireless is built upon McCaw Cellular, which it bought from Craig McCaw in 1994 and promptly renamed. McCaw has not forgotten the insult, and now his 16% ownership in Nextel will loom large.
By Bill Mann (TMF Otter)
September 8, 2000
It's funny how commerce works. After the merger between WorldCom (Nasdaq: WCOM) and Sprint (NYSE: FON) blew up, people expected WorldCom to go running out to buy another company with a heavy wireless presence. Two big targets were believed to be Nextel (Nasdaq: NXTL), the only wireless company with anything approaching national reach that is as yet unaffiliated with a big boy, and VoiceStream (Nasdaq: VSTR). But my money was on neither AT&T (NYSE: T) nor WorldCom jumping on the Nextel bandwagon, for very different reasons.
Wrong, evidently. While WorldCom could not suck it up and re-enter merger negotiations a year after it ended them at one-third the current share price, AT&T evidently has no problems going back to a potentially poisoned well. Rumor is that AT&T Wireless (Nasdaq: AWE) will be presenting an acquisition/merger proposal for Nextel at the AT&T board meeting later this month. Officials at AT&T Wireless have been dismayed at the poor showing of the tracking stock's performance and are looking for ways to differentiate the wireless from its struggling parent.
Nextel needs some $10 billion in additional investment capital over the next few years -- and as such has recently been looking for partners -- but it is a little strange that AT&T would come knocking. AT&T Wireless was formed around the company's purchase of McCaw Cellular in 1994, when Craig McCaw was forced to sell his crown jewel for some $11.5 billion because of mounting debt.
Though McCaw made out very well in this deal, he had to watch helplessly as AT&T stripped his name off of the network he had built. This was made all the worse when AT&T issued the Wireless tracking stock early this year in the largest IPO in U.S. history. McCaw is quite publicly very unhappy about this. He also owns 16% of Nextel, and has a huge amount of influence with its management.
So what's the take here? AT&T Wireless feels like it has to do something (here's a hint, guys: quit focusing on the share price and get out there and execute), and the biggest plum out there is Nextel. So regardless of the fact that Nextel uses standards that aren't interoperatable with AT&T's -- so there would be no economies of scale to extract from a combination -- and regardless of the probability that AT&T will have to sit across the negotiating table from a man hell-bent on extracting his pound of flesh, if they want to do a quick hit expansion of their wireless business in the U.S., this is the path.
But rest assured, the price would be huge. Craig McCaw will see to that.
Your Turn:
AT&T Wireless stock has languished since its IPO. From my perspective, it means that AT&T did a good job raising the most capital it could during the recent IPO. Does a merger with Nextel seem necessary from a business perspective, or is AT&T Wireless concentrating on the wrong things. Come chat on the Wireless World discussion board.
Related Links:
A New AT&T Offspring is Born, Breakfast With the Fool, 4/27/00
Craig's Higher Calling, Forbes Magazine |
