ShawnCowden
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WONDER HOW THIS WILL AFFECT SCANNING ??
CS;SDE">Sprint is near a deal to acquire Nextel Communications for more than $34 billion in a transaction that would further consolidate the rapidly changing telecommunications industry, according to executives involved in the negotiations.
The deal comes as the mobile phone industry faces fierce new market pressures, with competitors seeking to keep and attract customers who can jump easily from one operator to another.
A merger between Sprint and Nextel would create a powerful new cellular company, with some 39 million customers. It would also mean that 74 percent of the entire cellphone market would be controlled by three gigantic operators. Cingular, which recently completed its acquisition of AT&T Wireless, is the largest in the nation, with 46 million subscribers, and Verizon Wireless, the No. 2 in the market, has 42 million subscribers.
The boards of Sprint and Nextel are planning to meet separately on Tuesday to ratify the deal, the executives said, and they hope to announce it on Wednesday. Still, the executives cautioned that several thorny details, including a possible deal-breaking tax issue, still need to be worked out and that the deal could fall apart.
"It's a marriage of survival rather than growth for Nextel and Sprint," said Ken Dulaney, a telecommunications analyst at Gartner Inc. "They need each other's customers."
A deal would help two companies that face increasingly difficult business prospects.
Each is currently less than half the size of Cingular, and each could lose customers as Cingular and Verizon move aggressively with promotions and new plans that offer bundled phone services. Together they would be better able to fend off those rivals.
Once the transaction is completed, the combined company, which will have its headquarters in Reston, Va., where Nextel is based, and an operation center in Overland Park, Kan., where Sprint is based, would spin off Sprint's fixed-line business.
Under the deal, which both sides plan to call a merger of equals but in economic terms is an acquisition of Nextel by Sprint, shareholders of Nextel would receive stock and cash worth about 1.3 shares of Sprint for each share of Nextel that they own. The deal would value Nextel at about $34 billion based on yesterday's stock movements. Sprint would control just slightly more than 50 percent of the company.
Sprint's chief executive, Gary D. Forsee, would be the combined company's chief executive, and Nextel's chief, Timothy Donahue, would become the executive chairman. The board would be split 50-50.
The sale of Sprint's fixed-line business and the tax implications of that move remain the last major sticking points in the transaction, the executives said. Indeed, Sprint and Nextel are planning to meet with Internal Revenue Service officials on Monday to get guidance on whether such a spinoff could be tax-free to shareholders. If it would not be considered tax-free, the transaction could be scuttled, the executives said.
The combined company might wring savings of about $2 billion by merging operations, a central reason for the deal, the executives said.
As in most deals of this size, executive style and corporate culture are crucial. Nextel is a fiercely independent company, having grown out of a taxi radio-dispatch business.
Mr. Donahue, its chief executive, is informal and direct. Mr. Forsee, by contrast, was an executive at BellSouth, a traditional phone company.
Two executives close to the deal noted that the personal chemistry between Mr. Forsee and Mr. Donahue had become strained over the negotiations in recent days and could cause the deal to unravel if the relationship soured.
The differences between the companies, though, go beyond the executives. Nextel's network runs on a technology called iDEN that no other major cellular carriers use. The company has used it to develop a walkie-talkie service called Push to Talk that has proved popular with consumers and business customers.
Sprint's network runs on the more common C.D.M.A. technology and is being expanded to carry high-speed data services, an important revenue source in future years. Nextel customers, industry analysts say, would be encouraged to turn in their iDEN handsets for phones with Sprint's technology, a change that could alienate loyal Nextel subscribers.
To appease them, Sprint and Nextel may be forced to use both technologies simultaneously for several years, an expensive proposition that could dilute the combined company's profitability.
Although mergers of this size can run into antitrust problems, this deal is unlikely to cause that concern, Mr. Dulaney and others say. In October, the Justice Department approved Cingular's purchase of AT&T Wireless with relatively little comment. Sprint and Nextel combined would still be 15 percent smaller than the new Cingular. Even so, consumer groups say consolidation in the industry has left consumers with fewer choices.
Even with the wave of mergers during the past few years, prices have remained relatively stable, and carriers have introduced more services as well.
While most analysts and industry executives say a Sprint-Nextel alliance makes sense and can be accomplished, they also say that Verizon Wireless could make a counteroffer to buy Sprint.
Indeed, executives at Verizon Wireless - which is owned by Verizon Communications and Vodafone - held meetings on Thursday after news reports that Sprint and Nextel were in talks.
Executives from Verizon and Vodafone plan to reassess their options once Sprint and Nextel agree on a price, according to executives close to those companies.
Verizon Wireless would not comment on any possible bid or the potential for a Sprint-Nextel alliance.
While a Sprint-Nextel deal remains the most likely combination, there is "the potential for Verizon also making a bid for Sprint, given that fit also makes a ton of sense," according to Scott Cleland, an analyst at the research firm Precursor.
Buying Sprint would vault Verizon back to the top of the industry. Verizon and Sprint use the same technology in their cellular networks, making it easier to merge the services.
Sprint also controls a vast national fiber network that can connect calls, a system that Verizon could use. Sprint's wireless customers, business or residential, are also attractive. On average, they spend $63 a month on their cell phones. Verizon's customers, by contrast, spend just $51.60 a month.
Of course, Verizon Wireless may decide it is strong enough to continue operating on its own. Its revenue jumped 23 percent, to $7.3 billion, in the third quarter, and it added a record 1.7 million new subscribers. Verizon Wireless also has an industry-low 1.5 percent turnover rate.
Shares of Sprint dropped 14 cents, to close at $24.14. Shares of Nextel dropped 5 cents, to close at $29.76.
CS;SDE">Sprint is near a deal to acquire Nextel Communications for more than $34 billion in a transaction that would further consolidate the rapidly changing telecommunications industry, according to executives involved in the negotiations.
The deal comes as the mobile phone industry faces fierce new market pressures, with competitors seeking to keep and attract customers who can jump easily from one operator to another.
A merger between Sprint and Nextel would create a powerful new cellular company, with some 39 million customers. It would also mean that 74 percent of the entire cellphone market would be controlled by three gigantic operators. Cingular, which recently completed its acquisition of AT&T Wireless, is the largest in the nation, with 46 million subscribers, and Verizon Wireless, the No. 2 in the market, has 42 million subscribers.
The boards of Sprint and Nextel are planning to meet separately on Tuesday to ratify the deal, the executives said, and they hope to announce it on Wednesday. Still, the executives cautioned that several thorny details, including a possible deal-breaking tax issue, still need to be worked out and that the deal could fall apart.
"It's a marriage of survival rather than growth for Nextel and Sprint," said Ken Dulaney, a telecommunications analyst at Gartner Inc. "They need each other's customers."
A deal would help two companies that face increasingly difficult business prospects.
Each is currently less than half the size of Cingular, and each could lose customers as Cingular and Verizon move aggressively with promotions and new plans that offer bundled phone services. Together they would be better able to fend off those rivals.
Once the transaction is completed, the combined company, which will have its headquarters in Reston, Va., where Nextel is based, and an operation center in Overland Park, Kan., where Sprint is based, would spin off Sprint's fixed-line business.
Under the deal, which both sides plan to call a merger of equals but in economic terms is an acquisition of Nextel by Sprint, shareholders of Nextel would receive stock and cash worth about 1.3 shares of Sprint for each share of Nextel that they own. The deal would value Nextel at about $34 billion based on yesterday's stock movements. Sprint would control just slightly more than 50 percent of the company.
Sprint's chief executive, Gary D. Forsee, would be the combined company's chief executive, and Nextel's chief, Timothy Donahue, would become the executive chairman. The board would be split 50-50.
The sale of Sprint's fixed-line business and the tax implications of that move remain the last major sticking points in the transaction, the executives said. Indeed, Sprint and Nextel are planning to meet with Internal Revenue Service officials on Monday to get guidance on whether such a spinoff could be tax-free to shareholders. If it would not be considered tax-free, the transaction could be scuttled, the executives said.
The combined company might wring savings of about $2 billion by merging operations, a central reason for the deal, the executives said.
As in most deals of this size, executive style and corporate culture are crucial. Nextel is a fiercely independent company, having grown out of a taxi radio-dispatch business.
Mr. Donahue, its chief executive, is informal and direct. Mr. Forsee, by contrast, was an executive at BellSouth, a traditional phone company.
Two executives close to the deal noted that the personal chemistry between Mr. Forsee and Mr. Donahue had become strained over the negotiations in recent days and could cause the deal to unravel if the relationship soured.
The differences between the companies, though, go beyond the executives. Nextel's network runs on a technology called iDEN that no other major cellular carriers use. The company has used it to develop a walkie-talkie service called Push to Talk that has proved popular with consumers and business customers.
Sprint's network runs on the more common C.D.M.A. technology and is being expanded to carry high-speed data services, an important revenue source in future years. Nextel customers, industry analysts say, would be encouraged to turn in their iDEN handsets for phones with Sprint's technology, a change that could alienate loyal Nextel subscribers.
To appease them, Sprint and Nextel may be forced to use both technologies simultaneously for several years, an expensive proposition that could dilute the combined company's profitability.
Although mergers of this size can run into antitrust problems, this deal is unlikely to cause that concern, Mr. Dulaney and others say. In October, the Justice Department approved Cingular's purchase of AT&T Wireless with relatively little comment. Sprint and Nextel combined would still be 15 percent smaller than the new Cingular. Even so, consumer groups say consolidation in the industry has left consumers with fewer choices.
Even with the wave of mergers during the past few years, prices have remained relatively stable, and carriers have introduced more services as well.
While most analysts and industry executives say a Sprint-Nextel alliance makes sense and can be accomplished, they also say that Verizon Wireless could make a counteroffer to buy Sprint.
Indeed, executives at Verizon Wireless - which is owned by Verizon Communications and Vodafone - held meetings on Thursday after news reports that Sprint and Nextel were in talks.
Executives from Verizon and Vodafone plan to reassess their options once Sprint and Nextel agree on a price, according to executives close to those companies.
Verizon Wireless would not comment on any possible bid or the potential for a Sprint-Nextel alliance.
While a Sprint-Nextel deal remains the most likely combination, there is "the potential for Verizon also making a bid for Sprint, given that fit also makes a ton of sense," according to Scott Cleland, an analyst at the research firm Precursor.
Buying Sprint would vault Verizon back to the top of the industry. Verizon and Sprint use the same technology in their cellular networks, making it easier to merge the services.
Sprint also controls a vast national fiber network that can connect calls, a system that Verizon could use. Sprint's wireless customers, business or residential, are also attractive. On average, they spend $63 a month on their cell phones. Verizon's customers, by contrast, spend just $51.60 a month.
Of course, Verizon Wireless may decide it is strong enough to continue operating on its own. Its revenue jumped 23 percent, to $7.3 billion, in the third quarter, and it added a record 1.7 million new subscribers. Verizon Wireless also has an industry-low 1.5 percent turnover rate.
Shares of Sprint dropped 14 cents, to close at $24.14. Shares of Nextel dropped 5 cents, to close at $29.76.
