Sprint Nextel Corp. continued to throw money at its affiliate problems, announcing plans to acquire a pair of network partners-IWO Holdings Inc. and Gulf Coast Wireless L.P.-for more than $700 million. The deals will add more than 330,000 direct customers to Sprint Nextel’s operations and stop pending litigation between Gulf Coast Wireless and Sprint Nextel.
Sprint Nextel said it will pay $427 million for IWO Holdings, including the assumption of $208 million in debt. IWO Holdings’ shareholders will receive $42.50 per share in cash, with the deal expected to close in the fourth quarter. Sprint Nextel noted the transaction value represents 10.8 times earnings before interest, taxes, depreciation and amortization adjusted for the impact of special items for the 12 months ending June 30 and 8.5 times 2006 adjusted EBITDA.
IWO Holdings, which was spun off from fellow affiliate US Unwired Inc. earlier this year following IWO Holdings’ reorganization filing, serves more than 237,000 subscribers and covers about 4.8 million potential customers in portions of New York, New Hampshire, Vermont, Massachusetts and Pennsylvania.
Sprint Nextel picked up Gulf Coast Wireless for a paltry $287.5 million, including the assumption of debt. Gulf Coast serves 95,000 direct customers in southern Louisiana and Mississippi. That deal also is expected to close during the fourth quarter. Sprint Nextel said the transaction value represents 9.2 times EBITDA for the 12 months ending June 30 and 8.1 times 2006 EBITDA.
As part of the agreement, Gulf Coast Wireless and Sprint Nextel said they will seek an immediate stay of litigation pending in the U.S. District Court in Middle District of Louisiana. The litigation originally was filed by Gulf Coast Wireless in July. The lawsuit claimed Sprint Corp.’s acquisition of Nextel Communications Inc. violated terms of its affiliate agreement.
Analysts were not surprised by the deals, with many expecting Sprint Nextel to roll-up their affiliates in the coming months.
“Acquiring both IWO and Gulf Coast, in our view, represents a logical initiative from [Sprint Nextel’s] perspective, as both affiliates were relatively small in size, generated virtually no growth and overall reduces the number of related affiliates,” noted JP Morgan analyst Thomas Lee.
Sprint Nextel acquired US Unwired Inc. last month for $1.3 billion following similar violation claims. Analysts noted the US Unwired transaction represented 14.2 times 2005 EBITDA and 10.9 times 2006 EBITDA results.
Sprint Nextel also has announced agreements with affiliates iPCS Inc. and its subsidiaries Horizon Personal Communications Inc. and Bright Personal Communications Services L.L.C., giving the companies until Jan. 1 to work out potential modifications to their affiliate agreements. Sprint Nextel affiliate AirGate PCS Inc., which was acquired earlier this year by Alamosa Holdings Inc., Sprint Nextel’s largest affiliate, filed a similar complaint against Sprint Nextel earlier this month.
Sprint Nextel also announced earlier this month that it intended to pursue an appraisal process under affiliate Nextel Partners Inc.’s “put” option instead of moving forward with a negotiated acquisition.
Nextel Partners has said it would recommend its shareholders initiate the “put” option following Sprint’s acquisition of Nextel. The “put” option requires Sprint Nextel to purchase the 68 percent of Nextel Partners it does not already own at “fair market value” plus a “put premium.” Nextel Partners’ current market capitalization is around $7 billion.
