Sprint Corp. and Nextel Communications Inc. continue to wage a number of side battles in Sprint’s attempt to acquire Nextel. Most of the conflicts are with respective affiliates that are trying to clear up partnership pacts before the merger closes, expected to happen sometime this quarter.
The most heated claims last week were between Nextel and its affiliate Nextel Partners Inc., which began legal proceedings last month in New York, seeking a stay in the Sprint acquisition, pending amendments to its affiliate agreement. Nextel Partners’ claims are centered around a recent Sprint branding announcement to use the Sprint name for the combined Sprint Nextel operations and Nextel Partners’ possible use of the name for its own operations.
Nextel said it sent a letter to Nextel Partners asking for revisions to a Securities and Exchange Commission filing by Nextel Partners in late June detailing the terms of a control premium in the affiliate’s put option. That option, if exercised, would require Nextel to acquire the 68 percent of Nextel Partners it does not currently own for fair market value plus a control premium following Sprint’s purchase of Nextel.
“The preliminary proxy statement included a variety of other information, particularly sections essentially paraphrasing the unusual and complex language in the company’s certificate of incorporation governing the put rights, `risk factor’ boilerplate and various other data, including a stock trading price historical table,” Nextel wrote in the letter that was part of an SEC filing. “It did not include financial data that we believe would be necessary to assess the intrinsic value of Nextel Partners.”
Nextel also reiterated claims in a previous SEC filing that a recent run-up in Nextel Partners’ stock price following the announcement of Sprint’s planned acquisition of Nextel last December should be discounted in determining fair market value for Nextel Partners.
“In our opinion, additional discussion of the `unaffected’ market price is required,” Nextel said. “In our opinion, the `unaffected’ market price to which the charter refers are those that prevailed before the possibility of the put exercise became manifest.”
In a previous SEC filing, Nextel described Nextel Partners’ current trading value metrics as being “the highest in the industry by a significant margin” and added the appraisal value “could be lower, and we think should be lower” than its current trading price of $25 per share. Nextel noted that its affiliate’s enterprise value as a multiple of Wall Street 2005 estimates and enterprise value per subscriber is more than twice Nextel’s value, despite Nextel generating more operating income before depreciation and amortization per subscriber than Nextel Partners.
Nextel Partners’ stock has jumped more than 40 percent since Sprint announced plans to acquire Nextel last December.
For its part, Nextel Partners said that both Nextel and Nextel Partners in an attempt to settle the lawsuit have selected a three-member arbitration panel. Nextel Partners noted that the arbitration panel has scheduled a hearing for Aug. 25 with respect to its request for a preliminary injunction, and it has voluntarily withdrawn the lawsuit.
Nextel Partners also said Tim Donahue, Nextel president and chief executive officer, resigned from its board of directors. Donahue was on Nextel Partners’ board as the designee of Nextel’s wholly owned subsidiary, Nextel WIP Corp., and is scheduled to become chairman of the new Sprint Nextel Corp. operations when the deal is completed. Donahue said the resignation was related to Nextel Partners’ board recommending that its shareholders exercise their put rights following Sprint’s acquisition of Nextel. Christopher Rogers, Nextel senior vice president of global initiatives and spectrum group, replaces Donahue on the board.
Nextel Partners management also revised full-year guidance for the affiliate following a better-than-expected second quarter. The revised guidance included an increase in net customer additions, lower churn, higher service revenues and higher EBITDA.
Analysts were somewhat surprised by the aggressive update, noting a potential link between the guidance and Nextel Partners’ ongoing negotiations with Nextel regarding a possible acquisition.
“With the final valuations on the company for its sale to [Nextel] likely prior to 2006, this guidance looks more like negotiations, but combined with outstanding Q2 results, could push up valuations marginally,” noted SG Cowen & Co. telecom analyst Tom Watts.
For Sprint, the battles have centered around affiliates’ claims that the pending acquisition would violate exclusivity deals, noting that the combined Sprint Nextel would offer competing service in their markets using Nextel or its affiliate Nextel Partners Inc.’s network.
A number of Sprint affiliates have filed claims against Sprint and Nextel, including US Unwired Inc., iPCS Inc. and UbiquiTel Inc., seeking an injunction that would prevent Sprint Nextel from operating in affected markets and preventing Sprint from disclosing operational information about its affiliates to Nextel following the acquisition. US Unwired’s complaint was settled last month after Sprint agreed to acquire the affiliate for $1.3 billion.
Network affiliates Horizon Personal Communications Inc. and Bright Personal Communications Services L.L.C., which are subsidiaries of iPCS, as well as US Unwired Inc. subsidiary Gulf Coast Wireless L.P. joined the list of disgruntled affiliates last week. All three affiliates claim that the pending acquisition would violate their affiliate agreements and harm their operations.
Sprint said it had reached an agreement with iPCS, Horizon and Bright PCS under which the affiliates will not seek injunctive or equitable relief against Sprint or Nextel in exchange for Sprint not revealing operational information about the affiliates to Nextel. Sprint also plans to modify its branding campaign in the affiliates’ markets.
The agreement gives the companies until Jan. 1 to work out any potential modifications to the affiliate arrangements.
Analysts have said that they expect Sprint will try to settle the claims prior to the close of the Nextel deal, hinting that Sprint might be forced to either acquire all of the unhappy affiliates or renegotiate their agreements. Sprint’s largest affiliate, Alamosa Holdings Inc., has remained suspiciously quiet regarding any qualms concerning Sprint’s acquisition of Nextel, though analysts said they expect some sort of deal between Sprint and Alamosa around the time Sprint closes the acquisition.
