Sprint and Nextel confirm merger

16 Dec 2004

Recent speculation concerning a tie-up between US carriers Sprint Corp and Nextel Communications has proven to be correct as the two companies confirmed their plans to merge. The USD35 billion deal will create the third largest US phone company with around 35 million wireless customers on their own networks and a further five million through affiliates. The telcos, which have a combined total equity of around USD70 billion, are being valued equally, so each company’s shareholders will end up with around 50% of the new entity, which will be known as Sprint Nextel. Nextel shareholders will receive 1.28 shares in the new entity for each of their own shares, plus an additional payment of around USD0.50 per share. Existing Sprint shares will remain outstanding.

While at first glance the two firms seem a perfect match – with Sprint a major force in the consumer mobile market and Nextel concentrating on the business sector – their mobile networks operate using different standards, and there will be a number of technical hurdles to overcome before they can offer a combined service. Nextel’s wireless service is based on Motorola’s iDEN technology and the company’s infrastructure and consumer handsets will have to be converted to Sprint’s favoured CDMA technology. Motorola is expected to deliver a dual-band iDEN-CDMA handset which can be used during the transition period.

Sprint will retain its long-haul infrastructure and Nextel wireless traffic will be diverted onto this network. However, Sprint says that on completion of the merger its local telephone networks will be separated into a new company and will be spun off. Sprint has around 7.7 million residential and business local access customers.

Sprint’s chief executive, Gary Forsee, who has been tipped to take up a similar position at Sprint Nextel, commented: “This merger positions Sprint Nextel for greater success than either company could have achieved alone.” He added: “Nextel is recognised as a leader in profitability, customer loyalty, revenue per customer, push to talk and marketing to businesses and government. Sprint excels in the consumer business and in providing advanced wireless data services and global IP voice and data networks. Together, we will be positioned to provide the high-value, integrated communications solutions customers increasingly demand.”

Nextel’s CEO, Tim Donahue, is expected to assume the role of chairman at Sprint Nextel. He said: “We are confident that Sprint Nextel will generate efficiencies that will benefit customers, shareholders and employees. We will have the resources to develop and deploy compelling, differentiated services by unleashing the combined strengths of the two companies, each of which is recognised as a product and network innovator.”

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