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Extra
$35 billion deal joins Sprint, Nextel
Megamerger makes new company a solid No. 3 among wireless carriers; it'll use Sprint's technologies, not Nextel's.
By Reuters
Sprint Wednesday agreed to buy mobile telephone company Nextel Communications in a deal worth $35.17 billion to gain more business customers and more airwaves to transmit calls.
The deal, which was widely expected, would combine the No. 3 and No. 5 U.S. wireless carriers and create a new company with about 40 million customers, greatly narrowing the gap with industry leaders Cingular Wireless, a joint venture of SBC (SBC, news, msgs) and BellSouth (BLS, news, msgs), and Verizon Wireless (VZ, news, msgs).
Sprint (FON, news, msgs) plans to spin off its local telephone business to shareholders of the new company, to be called Sprint Nextel, as part of the deal.
The transaction values Nextel (NXTL, news, msgs) at $32.63 per share based on Tuesday's closing prices, representing a premium of almost 9% over Nextel's closing price of $29.99 on Nasdaq on Tuesday.
Nextel shares rose 2.5% to $30.75 in pre-market trade on the Inet electronic brokerage system, and Sprint shares fell nearly 3% to $24.40.
No. 3 with a bullet
The companies, which have a combined market capitalization of about $70 billion and had combined revenue of $40 billion for the 12 months ended Sept. 30, said they expect to derive savings of about $12 billion from the deal, which the boards of both companies have unanimously approved.
The combined revenue figure includes about $6 billion from Sprint's local telephone business.
The deal leaves the company's next biggest competitor, T-Mobile USA, owned by Deutsche Telekom, a distant fourth among U.S. national carriers with about 16.3 million customers.
Under the terms of the deal, existing Sprint shares will remain outstanding and Nextel shares will be converted into shares of the new company and a small amount of cash, valuing each Nextel share at about 1.3 shares of Sprint Nextel common stock.
The stock and cash allocation will be determined at the closing to ensure the local business spinoff is tax free, and the cash portion of the deal will not exceed $2.8 billion. At current figures, Nextel shareholders would receive about 1.28 Sprint Nextel shares and 50 cents in cash for each Nextel share, the companies said.
Sprint management -- and Sprint's technology
Sprint Chairman and Chief Executive Gary Forsee is to become CEO of the new company, and Nextel CEO Timothy Donahue will become chairman.
Sprint Chief Operating Officer Len Lauer and Nextel Chief Financial Officer Paul Saleh will maintain their roles at the new company.
The local telecommunications business will have its own management team and board of directors.
The spun-off local telecoms business is expected to pay quarterly dividends, but Sprint Nextel plans to stop paying dividends following the spinoff, the companies said.
The deal, which is subject to shareholder and regulatory approval, is expected to close in the second half of 2005. Analysts widely expect regulators to approve the deal.
The new company, over time, will move Nextel's network to the same technology that Sprint uses.
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