Global Alliance Between Sprint, Two European Firms on Track : Communications: Analysts say long-distance carrier is likely to get $4.2 billion from Deutsche Telekom, France Telecom.
Sprint Corp., Deutsche Telekom and France Telecom said Thursday that their long-delayed global alliance will proceed, with the financial terms little different from those agreed to a year ago.
The two state-owned European companies would invest between $3.8 billion and $4.2 billion for a 20% stake in Sprint, dependent on the share price performance of the U.S. long-distance carrier.
Each company would own a one-third stake in a joint venture called Phoenix, aimed at the multibillion-dollar market for the global communications needs of large companies. The venture would offer a global calling card for consumers and allow smaller telecom firms to buy capacity on its network.
“This joint venture will be a major force from its very first day of operation,” said Ron Sommers, chairman of Deutsche Telekom.
“Our best guess would be that the transaction will close toward the end of the year,” Sprint Chairman and Chief Executive William Esrey told a news conference.
Sprint, the third-largest U.S. long-distance provider, has teamed up with titans. Deutsche Telekom is the world’s second-largest telecom company, with $44 billion in revenue in 1994, and France Telecom is No. 4, with $26 billion.
Indeed, the power of the alliance makes regulatory approval in Europe and the United States its biggest remaining hurdle.
The European Commission is worried that the French and German companies would squeeze competitors in newly liberalizing European markets, while U.S. regulators want assurances on access for U.S. telecom firms to markets in France and Germany before they grant approval.
“We are confident our alliance will receive all the necessary approvals in the U.S. and Europe,” Esrey said.
Investment analysts were delighted that the European partners would be paying for their 20% stake in Sprint all at once instead of in two installments and said Sprint’s stock performance is likely to get it the $4.2-billion price originally agreed upon.
“Basically, they stuck to the original deal but will get all the money at once,” Jack Grubman of Salomon Bros. said.
The original deal, announced a year ago, set a price of $47.225 per Sprint share in an immediate tranche worth $2 billion, with the balance set at $51 per share two years later.
Sprint’s shares closed Thursday at $34.875, up 25 cents, on the New York Stock Exchange.
However, Sprint’s stock collapsed in December when it announced a big-spending alliance with cable TV companies Tele-Communications Inc., Comcast Corp. and Cox Communications Inc. to bundle local, long-distance and wireless phone service with cable TV.
The new deal sets a target price range for the shares, which includes the original $47.225 and could be as high as $48.70. If Sprint shares stay at or above their current price of about $35 for the few weeks before the deal closes, the $4.2 billion the company originally wanted would be guaranteed.
