Sprint Corp.’s pending acquisition of Nextel Communications Inc. received mixed news Wednesday as a Sprint wireless affiliate filed a lawsuit attempting to prevent Sprint from competing against the affiliate in its markets following the planned acquisition. On the positive side, the deal gained support from both Sprint and Nextel shareholders.
Sprint affiliate Ubiquitel Inc. claimed that Sprint’s pending acquisition of Nextel will violate its affiliate agreement as the combined operations plan to use Nextel’s existing infrastructure, licenses and network to augment Sprint’s network in the area.
“Thus, the seamless national network that Ubiquitel and Sprint’s other affiliates have financed, designed, constructed, managed and operated in their respective service areas will be expanded to draw on additional resources managed and operated by persons and entities other than the affiliates,” Ubiquitel noted in its claim. “Accordingly, after the merger closes, Ubiquitel will be competing in its exclusive service areas with Sprint Nextel to sign up new customers for exactly the same seamless nationwide Sprint Nextel network, in violation of the management agreement.”
Ubiquitel also said that the Sprint/Nextel operations plan to begin selling newly branded Sprint services in former Nextel retail outlets that will be rebranded as Sprint Nextel stores. In support of its claim, Ubiquitel said that during a conference call with its affiliates late last month, Sprint said its goal was for both Sprint and Nextel to sell both companies’ products and services on “day one” after the acquisition is complete.
Ubiquitel added that Nextel’s ongoing spectrum relocation process with the Federal Communications Commission will further violate its affiliate agreement. The FCC plan will provide Nextel with 10 megahertz of spectrum in the 1.9 GHz spectrum band in exchange for some of Nextel’s 800 MHz spectrum holdings and nearly $5 billion in cash and related expenses. Ubiquitel said its affiliate agreement prevents Sprint from offering a competing service using the 1.9 GHz spectrum bands in Ubiquitel’s service areas.
Ubiquitel said it is licensed by Sprint to provide services in portions of California, Nevada, Washington, Idaho, Wyoming, Utah, Indiana, Kentucky and Tennessee, and it currently serves more than 413,000 Sprint wireless customers.
The Ubiquitel complaint also alleges “tortuous interference” by Nextel in improperly interfering with the affiliate’s exclusive rights under the affiliate agreement. Ubiquitel claims that Nextel was aware that its acquisition by Sprint would violate the affiliate agreement with Sprint, but Nextel “intentionally caused Sprint to execute the merger agreement-a significant factor giving rise to the imminent breach of the management agreement.”
Sprint noted in a Securities and Exchange Commission filing that both Sprint and Nextel plan to “vigorously defend this matter.”
Ubiquitel said it was seeking a court judgement to force Sprint to comply with the exclusivity provisions of its affiliate agreement and prevent Sprint from disclosing confidential Ubiquitel business information to any person involved in operating or managing Nextel’s business operations in Ubiquitel’s markets; using Nextel’s infrastructure, licenses or network to provide Sprint coverage or sell Sprint products and services in Ubiquitel’s service areas; using the Sprint brand to sell wireless services in Ubiquitel’s service areas; and from owning, operating, building or managing a wireless network using Nextel’s 1.9 GHz spectrum in Ubiquitel’s service areas.
Sprint said in its SEC 8-K filing that it had discussed possible revisions of Ubiquitel’s affiliate agreement ahead of its acquisition of Nextel, and it expected those discussions to continue.
The Ubiquitel suit is similar to one filed by fellow affiliate US Unwired Inc. that attempted to prevent Sprint/Nextel from offering competing wireless services in US Unwired’s Southeast footprint. That suit, which went to trial last month, was settled earlier this week when Sprint agreed to acquire US Unwired for $1.3 billion.
Nextel has a similar dilemma with its affiliate Nextel Partners Inc., which began legal proceedings last week in New York seeking a stay in the Sprint acquisition of Nextel, 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.
The Nextel Partners’ issues are not expected to impede Sprint’s acquisition of Nextel as Nextel Partners management has already said it will encourage its shareholders to vote in favor of a put option that will force Nextel to acquire the 68 percent of Nextel Partners it does not already own.
Despite the affiliate issues, Sprint and Nextel shareholders overwhelmingly both voted earlier today in favor of Sprint’s acquisition of Nextel. Reportedly more than 70 percent of Nextel shareholders and 96 percent of Sprint shareholders voted to approve the deal, which is still waiting approval from the Federal Communications Commission and Department of Justice. FCC staff members have reportedly recommended approval of the deal, which is expected to close next month.
