Posted on: Friday, December 10, 2004
Sprint-Nextel would become No. 3
By Dan Lonkevich
Bloomberg News Service
Sprint Corp., the No. 3 U.S. mobile-phone company, and Nextel Communications Inc. are in talks about a possible merger, people familiar with the matter said.
A merger would combine Sprint with the fifth-largest U.S. mobile-phone company and create a provider with a market value of about $70 billion, the people said.
Pressure on mobile-phone companies to increase in size has grown since Cingular bought AT&T Wireless Services Inc. for $41.3 billion in October, becoming the biggest provider ahead of Verizon Wireless. Sprint Chief Executive Gary Forsee and Nextel Chief Executive Tim Donahue would combine their companies into a bigger No. 3 provider, with 33 million subscribers.
"There are some reasons why it would make sense," said Mark Hesse-Withbroe, who helps manage $125 billion of investments at U.S. Bancorp Asset Management in Minneapolis, including Sprint shares. "Among the Nextel, Sprint, Verizon camp, it's probably where a merger would most likely take place."
Financial network CNBC and the Wall Street Journal earlier reported the talks. Nextel spokeswoman Audrey Schaefer declined to comment. Sprint spokesman Scott Stoffel also declined to comment.
The talks are in an early stage and no financial advisers have been hired, the people said.
Shares of Sprint rose $1.78, or 7.9 percent, to $24.28 in New York Stock Exchange composite trading. Nextel, the largest- provider of push-to-talk mobile telephones, rose $1.84, or 6.6 percent, to $29.81. Verizon Wireless and Cingular shares don't trade.
A merger of Sprint and Nextel would reduce the number of large U.S. mobile-phone providers to four from five.
A combined Nextel, with 15.3 million subscribers, and Sprint, with 17.3 million, would also come closer to Cingular and Verizon in size. Cingular has more than 47 million subscribers and Verizon has more than 42 million.
Overland Park, Kan.-based Sprint would gain access to Nextel's business customers, who pay higher monthly bills and are more loyal than customers of any other national wireless carrier. Nextel's average monthly bills were $69 and its monthly rate of customer turnover was 1.5 percent in the third quarter, compared with Sprint's $63 in average monthly bills and churn of 2.7 percent.
Nextel loses a smaller percentage of subscribers than any other mobile-phone company in part because it sells a combined walkie-talkie wireless service that outperforms competitors' copycat versions, analysts and investors have said.
Sprint's network would give Reston, Va.-based Nextel a head start in upgrading its existing airwaves to high-speed technology, Hesse-Withbroe said.
Donahue, 55, led Nextel since 1996, after cellular pioneer Craig McCaw invested in the company. In the past two years the shares have more than doubled as Nextel returned to profit and increased revenue per user.
Forsee, 54, returned to Sprint from BellSouth Corp. in March 2003, taking over a company that was losing market share in local, long-distance and mobile-phone rankings. The shares have risen 48 percent this year, buoyed by improving profits. Forsee has reduced headcount by 11,000 since becoming chief executive.
