Sprint Agrees to Buy Nextel

Furthering the consolidation of the wireless industry, Sprint Corp. on Wednesday unveiled plans to acquire rival Nextel Communications Inc. in a cash and stock deal worth $33.8 billion.

Sprint would remain the country’s No. 3 cellular provider, but Nextel’s 15.3 million high-revenue subscribers would make the combined company a stronger competitor in a winnowing field. The new company -- to be called Sprint Nextel -- would have 38.5 million customers, compared with Cingular Wireless’ 47.6 million subscribers and Verizon Wireless’ 42.1 million.

For Nextel, which has won over business users with its walkie-talkie function, the deal would save the company from having to spend as much as $3 billion on network upgrades so that customers could use their phones to send e-mail and other data at high speeds.

In an announcement that had been anticipated for about a week, Sprint and Nextel executives portrayed the deal as a merger of equals that would result in $12 billion in savings over three years.

Many analysts looked favorably on the deal, although it doused rumors of an even bigger consolidation scenario -- Verizon buying Sprint -- that had helped run up Sprint’s stock price.

Sprint shares fell $1.08 to $24.02 on the New York Stock Exchange on Wednesday, while Nextel shares dropped $1.29 to $28.70 on Nasdaq.

“It was the old ‘buy on the rumor, sell on the news’ situation,” said Zach Wagner, an analyst with Edward Jones in St. Louis.

Investors may also have been skeptical about some of the cost-cutting forecasts made by Sprint and Nextel executives, said analyst Albert Lin of American Technology Research in San Francisco.

“These are two companies that have very different cultures and different technologies,” Lin said. “Saving $1.2 billion to $1.5 billion in the first year -- which they said they could do -- by putting them together is a tall order.”

Though cost savings are important, Sprint Chief Financial Officer Robert Dellinger said the biggest long-term benefit for the company would be the addition of Nextel’s all-wireless customer base.

“Now we get about 50% of our revenue from wireless,” he said. “Putting us together gives us a company that gets about 74% from wireless.”

And wireless is the fastest-growing part of the telecom business, Dellinger said.

At least part of that growth is expected to come from data transmission. Sprint is already building a next-generation network for data. Nextel hasn’t started building its own next-generation network; by merging with Sprint, it would save an estimated $2 billion to $3 billion, said Nextel Chief Operating Officer Tom Kelly.

If the transaction is approved by regulators and shareholders, the company would spin off Sprint’s local telephone business while retaining its long-distance customers. Nextel spokeswoman Audrey Schaefer said the fiber-optic network at the heart of Sprint’s long-distance business was a valuable long-term asset.

Consumer advocates fretted that a Sprint-Nextel combination, coming on the heels of Cingular’s $41-billion acquisition of AT&T; Wireless, would ultimately lead to higher prices. If the deal goes through, the top three wireless carriers would serve about 75% of the country’s cellular customers.

“We fear the cellphone market will start to function the way the cable and satellite market has, where prices go up year in and year out due to lack of competition,” said Gene Kimmelman, director of public policy at Consumers Union in Washington.

Under terms of the deal, Nextel shareholders would receive stock and a small amount of cash, with a total value equal to 1.3 shares of Sprint. The exact amount of stock and cash will be determined at the close of the deal, though the companies said that if the calculation were made Wednesday, each Nextel share would be worth about 1.28 Sprint shares plus about 50 cents.

Top jobs in Sprint Nextel would be split among the two companies. Sprint Chief Executive Gary Forsee would hold that job at Sprint Nextel, and Nextel CEO Timothy Donahue would become the combined company’s chairman. The board would consist of 12 directors, six from each company.

Sprint Nextel would have its executive headquarters in Nextel’s current home of Reston, Va., and its operational headquarters would be in Overland Park, Kan., where Sprint is based.

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Top carriers

Sprint’s acquisition of Nextel would make the combined company a solid No. 3 in the cellphone market.

Number of subscribers at the biggest U.S. wireless carriers (in millions)

Cingular: 47.6

Verizon: 42.1

Sprint/Nextel: 38.5

T-Mobile: 16.3

Source: CTIA