| nightguy |
After reading this, I don't see how the Nextel deal makes a whole lot of sense. Bummer, I just switched from a very good bargain with Sprint to Verizon.
Sprint Corp. has reached a tentative agreement to acquire Nextel Communications Inc. for more than $34 billion in a transaction that would lead to further consolidation in the telecommunications industry, according to executives involved in the negotiations.
The deal comes as the mobile phone industry faces fierce market pressures as competitors seek to keep and attract customers.
A Sprint-Nextel merger would create a powerful new cellular competitor with 39 million customers. It would mean that 74 percent of the cell-phone market would be controlled by three huge firms. Cingular, which recently completed its acquisition of AT&T Wireless, is the nation's largest with 46 million subscribers. No. 2 Verizon Wireless has 42 million subscribers.
The boards of Sprint and Nextel are planning to meet separately Tuesday to ratify the deal, the executives said, and hope to announce it Wednesday.
Still, the executives cautioned that several details, including a possible deal-breaking tax issue, must be worked out, and the deal could fall apart.
If the transaction is completed, however, the combined company, which will be based in Reston, Va., where Nextel is based, plans to spin off Sprint's land-line business.
A union of Sprint and Nextel would help two companies that face increasingly difficult business prospects. Each is less than half the size of Cingular, and each could lose customers as Cingular and Verizon move aggressively with promotions and new plans that offer bundled phone services.
"It's a marriage of survival rather than growth for Nextel and Sprint," said Ken Dulaney, an analyst at the Gartner Group. "They need each other's customers."
Under the proposed deal, which each side plans to call a merger of equals but really is an acquisition of Nextel by Sprint, shareholders of Nextel would receive stock and cash worth about 1.3 shares of Sprint for each Nextel share. The deal would value Nextel at about $34 billion based on Friday's stock movements. Sprint would control slightly more than 50 percent of the company.
Sprint's chief executive, Gary Forsee, would be the combined company's CEO, and Nextel's chief, Timothy Donahue, would become executive chairman.
The sale of Sprint's land-line business, and the tax implications of that move, however, remains the last major sticking point, the exectives said. Sprint and Nextel plan to meet Monday with IRS officials to get guidance on whether such a spin-off could be tax-free to shareholders. If such a spin-off would not be considered tax-free, the transaction might be scuttled, the exectives said.
The executives said the combined company hopes to wring savings of about $2 billion by merging their operations, a central reason for the deal.
As in most deals of this size, executive style and corporate culture are crucial. Nextel is a fiercely independent company, having grown out of the taxi radio dispatch business. Donahue, its chief executive, is informal and direct. Forsee was an executive at BellSouth, a traditional phone company. Two executives close to the deal noted that the personal chemistry between the two had become strained over the negotiations in recent days and could cause the deal to unravel if the relationship sours.
The differences between the companies, though, go beyond the executives. Nextel's network runs on a technology called iDEN that no other big cellular carriers use. The company has used it to develop a walkie-talkie service called Push To Talk that has proved popular with consumers and business customers.
Sprint's network runs on the more common CDMA technology that is being expanded to carry high-speed data services, an important future revenue source. Nextel customers, analysts say, would be encouraged to turn in their iDEN handsets for phones with Sprint's technology, a change that could alienate loyal Nextel subscribers.
To appease them, Sprint and Nextel might be forced to use both technologies for several years, an expensive proposition that could dilute the combined company's profitability and hamper its ability to cut prices to attract subscribers.
Although mergers of this size can run into antitrust problems, this deal is unlikely to cause that concern, Dulaney and others said. Last month, the Justice Department approved Cingular's purchase of AT&T Wireless with relatively little comment. Sprint and Nextel combined would still be 20 percent smaller than the new Cingular. Even so, consumer groups say consolidation in the industry has left consumers with fewer choices.
While most analysts and industry executives say a Sprint-Nextel alliance makes sense and can be accomplished, they also say Verizon Wireless might make a counteroffer for Sprint. Verizon Wireless executives met Thursday after the Sprint-Nextel talks were reported.
While a Sprint-Nextel deal remains the most likely combination, there is "the potential for Verizon also making a bid for Sprint, given that fit also makes a ton of sense," according to Scott Cleland, an analyst at the research firm Precursor.
In addition to immediately vaulting Verizon back to the top of the industry, Verizon and Sprint use the same technology in their cellular networks, which makes it easier to merge the services. |
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