Sprint, Nextel to Merge

UPDATED: The companies will unite to challenge Cingular and Verizon Wireless for mobile voice and data customers.
Posted December 15, 2004

Jim Wagner

UPDATED: Sprint and Nextel have agreed to merge, to better compete with Cingular and Verizon Wireless for voice and data customers. The new company, Sprint Nextel, will serve more than 40 million wireless subscribers.

Shareholders from Sprint and Nextel will each have a 50 percent stake in the combined company, with each common share of Nextel equal to a total value of 1.3 shares of Sprint Nextel stock after the merger.

Officials expect the merger to close in the second half of 2005, pending approval from state and federal regulators.

"I am jazzed about this combination because the combined company's assets and capabilities are so closely aligned with the high-growth areas of our industry," Timothy Donahue, Nextel president and CEO, said in a conference call with analysts. "This new powerhouse company has the spectrum, the infrastructure, the distribution and the superb and differentiated product portfolio that will drive our continued success."

Donahue will take be chairman of the merged company. Gary Forsee, Sprint's chairman and CEO, will take the helm of Sprint Nextel as president and CEO. The pair will fill the mid-management ranks in coming months.

Executives expect $12 billion in synergies from the combined company, mainly from their wireless networks and operations. The company will maintain executive headquarters in Nextel's Reston, Va., building, and operational headquarters in Sprint's Overland Park, Kan., facility.

Donahue and Forsee outlined a network migration path as well. Little will change in 2005, as the companies await merger approval. Most of the wireless work will focus on making Sprint's CDMA 1.9 GHz network interoperable with Nextel's 800 MHz, as well as drafting up site-sharing arrangements.

Colocation work will continue in 2006, and the merged company will also begin work on consolidating network operations. Sprint Nextel officials will also start planning on moving Nextel's iDEN network over to CDMA while they start marketing Motorola dual-mode phones that use Nextel's push-to-talk service on Sprint CDMA-based phones.

In 2008, Sprint Nextel will start developing voice over IP and push-to-talk services on Sprint's next-generation wireless platform, CDMA2000 1x EV-DO. Sprint Nextel officials expect 14,000 Nextel cell sites, about half the current number, will host CDMA equipment by 2008.

"We have a truly enviable spectrum position," Forsee said. "The company will leverage this strong spectrum position as we move towards Sprint's planned deployment of EV-DO in 2005."

Another money-saver for the combined wireless interest will be the sale of Sprint's local telecommunications business, which will occur after the merger is completed. Officials say it will create the largest independent local telephone in the country and they plan on filling the company's management team with an equal mix of Sprint and Nextel designees. The new company will trade on the New York Stock Exchange.

Savings will also come from layoffs, as the two companies merge their wireless network, migrate Nextel's telecommunications traffic onto Sprint's existing network, and combine operational tasks like sales, marketing and IT.

The merger announcement comes nearly a year after Cingular Wireless -- the BellSouth and SBC joint venture -- and AT&T Wireless began merger discussions, which came to fruition last month after the Department of Justice (DOJ) approved the $41 billion deal.

The Cingular acquisition catapulted it past Verizon Wireless as the top mobile carrier in the United States.

Rumors of a Sprint Nextel merger started Friday, as the two companies were finishing up with talks. It opened up a wave of speculation over what the combined company would look like and further prompted news reports of a competing bid by Verizon to acquire Sprint.

Colin C. Haley contributed to this report.

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