Posted on: Tuesday, February 25, 2003
Nextel duo rides herd on major comeback
By Tom Giles
Bloomberg News Service
RESTON, Va. — A year ago, Nextel Communications Inc. Chief Financial Officer Paul Saleh and Chief Executive Officer Tim Donahue were urged by bankers to file for Chapter 11 bankruptcy protection.
"A lot of folks were really concerned about Nextel's ability to survive," Saleh said.
The concerns: Nextel, the No. 5 U.S. mobile-phone company by subscribers, had too much debt, its international unit had missed a loan payment, and customer growth was slowing.
The 46-year-old CFO and the 54-year-old CEO spurned the suggestion. Instead, Saleh used cash and shares to cut debt by $3.2 billion in 2002, while the number of customers grew 23 percent to 10.6 million. Donahue cut 5,300 jobs in the past two years and lowered capital spending by 38 percent.
The result: Nextel made a $1.4 billion 2002 profit, the first profit in its 15-year history, the company said last week.
Nextel stock, which fell as low as $2.50 in June from a March 2000 peak of $82.94, is reviving. The shares have almost tripled in the past year, rising 187 percent, to close Friday at $13.36.
"They've done some significant repair to the balance sheet," said Eric Misenheimer, who holds Nextel debt among the $500 million in high-yield bonds he helps oversee at Northern Trust Corp. in Chicago.
One-quarter of Nextel's board seats are controlled by billionaire Craig McCaw, who with his family agreed in 1995 to invest as much as $1.1 billion in Nextel in succeeding years. McCaw's company, Digital Radio LLC, is the 11th-largest shareholder in Nextel, according to Bloomberg data.
The biggest risk for Saleh and Donahue may now be rival products rather than the weight of debt, investors said.
Nextel targets corporate clients: construction crews, public safety agencies and other businesses that communicate in groups. That has allowed it to charge the highest bills in the industry, averaging $69 a month.
The company's mobile phones include a walkie-talkie device known as Direct Connect, designed by Motorola Inc., that allows customers to talk to groups of users at the push of a button.
Verizon Communications Inc., the biggest U.S. mobile-phone company, plans to introduce a push-to-talk product by the end of the year for its Verizon Wireless unit, a joint venture with Vodafone Group Plc of Britain.
Alltel Corp., the No. 7 U.S. wireless carrier, intends to test a similar product this year. And Sprint Corp.'s wireless division, Sprint PCS, the fourth-largest U.S. mobile phone company by customers, is working on push-to-talk phones. None of the companies has given much detail.
"Companies like Verizon Wireless will eventually get a service that's comparable," said Michael Mahoney, manager of the $150 million Communications and Technology Fund at EGM Capital in San Francisco, which sold its Nextel shares earlier this year. "That may cause Nextel to lose some of its premium."
In an attempt to stay ahead, Nextel is taking Direct Connect nationwide.
