Sprint Nextel Corp. will purchase the 68 percent of Nextel Partners Inc. it does not currently control for $6.5 billion, the two companies have announced.
The deal puts an end to contentious legal wrangling over how much Sprint Nextel would fork over to acquire Nextel Partners, and puts Sprint Nextel’s largest affiliate in its pocket. That leaves only a handful of Sprint Nextel CDMA affiliates left to deal with before the company can take a breather from the turbulence caused by Sprint Corp.’s Aug. 12 acquisition of Nextel Communications Inc. Bear Sterns analysts predicted that Sprint would announce the remaining acquisitions within the next two months.
Nextel Partners had the right to require Sprint Nextel to buy the remaining interest of the company that Sprint Nextel did not already own after Sprint acquired Nextel. Nextel Partners shareholders invoked the put option in October, triggering an appraisal that determined the purchase price.
The purchase price of $28.50 per share of Partners’ Class A stock was a compromise between market values determined by two appraisers, Nextel Partners’ appraiser Morgan Stanley (which estimated Partners’ value to be $29.75 per share) and Sprint Nextel’s appraiser Lazard (appraisal of $27.25 per share). According to Nextel Partners’ charter, the two prices were averaged since they were within 10 percent of one another. The purchase price provided Nextel Partners with a total value of about $10 billion and was about 8 percent more than the company’s per-share price at close of markets on the day before the acquisition was announced.
“We believe that, aligned with Sprint Nextel, we are poised to move to the next level,” said John Chapple, chief executive officer and president of Nextel Partners. “This is an across-the-board success. It results in an attractive price and provides certainty for all Nextel Partners shareholders.”
“As we work through the regulatory approval processes, we intend to focus on plans for efficiently integrating Partners’ business into our operations in a way that is seamless for customers and employees,” said Sprint Nextel CEO Gary Forsee.
The speediness of the deal surprised many analysts, who had expected that a third appraisal would be needed to settle the purchase price dispute. Reactions to the deal were generally optimistic.
“We believe the transaction is a positive for [Sprint] as it eliminates a substantial management distraction, uncertainty with the put process outcome, and the price is reasonable in our view,” said Bear Sterns analyst Phil Cusack.
The Nextel Partners transaction must receive regulatory approvals and is expected to close in the second quarter of 2006, though some analysts think it could happen sooner because the two companies were considered one by federal regulators as they examined previous deals, and there are few issues around spectrum or overlapping service areas. The put price is final and binding on all Nextel Partners shareholders, unless they opt to challenge the price, in which case they would receive a price “estimated to be well below the put price,” according to a statement from the companies. Sprint Nextel has waived its right to challenge the put price.
“We view this news as good for Sprint, as it wraps up a nagging thorn in their side, [and] expect they can accelerate discussion with all other remaining affiliates,” commented Raymond James analyst Ric Prentiss, adding that the company will now be able to “focus on the real business at hand, which is competing with the other large national wireless operators for customers and to grow their cash flows.”
However, Sprint Nextel stock dipped the day of the announcement on news that the company’s financial rating from Merrill Lynch analyst David Janazzo had been downgraded from “buy” to “neutral” due to concerns about weaker-than-expected customer adds for the fourth quarter.
In response to the sell-off, Bear Sterns reported that “our channel checks indicate that Sprint’s growth this quarter will come more from the prepaid direction than we had originally expected,” though it anticipated that Sprint would still achieve its goal of 1.4 million net adds.
UBS noted that the carrier has been “radio silent” regarding the 1.4 million net additions and “has not given a split between postpaid and prepaid other than saying that both segments will see meaningful increases over 3Q 05,” when direct postpaid was 669,000 and direct prepaid was 300,000. UBS attributed the possibility of weak postpaid adds to the fact that Sprint Nextel has not been aggressively plugging its family plans, but it viewed the operator’s strategy as valuing quality over quantity.
