WSJ (7:25 p.m. tonight) -- Sprint, Nextel Make Progress on Deal .........................
December 10, 2004 7:25 p.m.
Sprint, Nextel Make Progress on Deal
Combined Entity Would Spin Off Sprint's Local-Phone Carrier
By DENNIS K. BERMAN and JESSE DRUCKER
Staff Reporters of THE WALL STREET JOURNAL
Sprint Corp. and Nextel Communications Inc. have tentatively agreed on key terms in a $35-billion merger deal that would create a giant cellular carrier with nearly 39 million subscribers, said a person familiar with the matter. The merged company would then spin off Sprint's traditional land-line telephone service to shareholders.
The talks, characterized as advanced negotiations, could still fall apart, but if things stay on track, a deal could be announced in days.
Current Sprint Chief Executive Gary Forsee will continue to serve in that role at the new, largely wireless company, which will be called Sprint-Nextel. Nextel Chief Executive Timothy Donahue would serve as executive chairman of the new company, which would be the nation's third largest cellphone operator.
The company would have a 50-50 split among board members and would have a corporate headquarters in Reston, Va., where Nextel is currently based, with an operating headquarters in Overland Park, Kan., where Sprint is currently based. The spin-off would maintain its headquarters in Overland Park, Kan.
Under the tentative deal, Sprint would pay the equivalent of 1.3 shares of its stock, with a small portion of that coming in cash, for each Nextel share.
Based on Sprint's 4 p.m. price Friday of $24.14 on the New York Stock Exchange, the deal is valued at $31.38 a share or $34.9 billion, which is a 5% premium to Nextel's closing share price of $29.76. In after hours trading on Friday, Nextel rose to $29.99, and Sprint rose to $24.35, according to Inet.
The deal was structured to give Sprint shareholders 51% of the combined company. That is important because the combined company, post-closing, will be spinning off Sprint's local telephone business, and the company wants to try to avoid paying taxes on the transaction.
Shares of Nextel jumped when news of the deal's terms hit the market while shares of Sprint sagged. If the stocks continue to move in opposite directions, it could put pressure on the companies to alter the terms of the deal.
Nextel, the smallest of the country's national wireless carriers, has grown rapidly because of its unique "push to talk" service, which essentially turns cellphones into walkie-talkies and is popular with businesses. Sprint, which began life as a long-distance phone company, now operates the country's third biggest cellular operation with 23.2 million customers.
The deal would give the new company the heft to battle with the industry's two giants, Verizon Wireless and Cingular Wireless. Verizon Wireless is a joint venture of Verizon Communications Inc., and Vodafone Group PLC, and Cingular is owned by BellSouth Corp. and SBC Communications Inc. The three companies would control 75% of the U.S. cellular market. The talks come just six weeks after Cingular became the country's largest cellphone operator, following its completed acquisition of AT&T Wireless Services Inc.
Nextel has two big problems, and a deal with Sprint would help solve them: It needs more radio-wave spectrum, the valuable airwaves that cellular operators use to transmit calls. And it needs to switch to an entirely new network technology to keep up with competitors offering services like high-speed Web browsing.
For Sprint, which has been stuck in the middle of the wireless pack, the deal would make it nearly as large as its bigger wireless competitors, lowering its costs as it embarks on a multibillion-dollar plan to upgrade its own network.
The combination would also further underscore the fact that wireless has become the future of communications. Already, 172 million people in the U.S. have wireless phones. An intense race has begun to offer them Web access, music, e-mail and photos. Representatives from Sprint and Nextel declined to comment yesterday.
Write to Dennis K. Berman at dennis.berman@wsj.com and Jesse Drucker at jesse.drucker@wsj.com
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