Qualcomm Inc (QCOM)

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Sprint emerges as the buyer
51-49 stakes seen in $36 billion plan; rival bid could surface
By CBS MarketWatch
Last Update: 2:44 PM ET Dec. 11, 2004

http://cbs.marketwatch.com/news/story.asp?siteid=mktw&guid=%7B266748F6%2DF701%2D480F%2DA780%2DD2...

SAN FRANCISCO (CBS.MW) -- Although a Sprint-Nextel combination is being characterized as a $36 billion merger of equals, published reports describe the emerging transaction as a purchase by Sprint.

An announcement could come as soon as Wednesday, according to the Wall Street Journal and New York Times. Both papers cited people familiar with the deal and said boards of the two wireless telecom companies are scheduled to meet Tuesday.

Adding to the drama of a big transaction, the Times said Saturday that Verizon and partner Vodafone could make an offer to top Sprint's price for Nextel. Citing industry strategists and executives from Verizon and Vodafone, the Times said any offer could come after Sprint-Nextel terms are publiclydisclosed.

Sprint (FON: news, chart, profile) will exchange the equivalent of 1.3 shares for each Nextel (NXTL: news, chart, profile) share, the Wall Street Journal has reported. Payment would include some cash, according to the report. The Journal said terms are designed to give Sprint 51 percent of the ownership.

With a planned spinoff of Sprint's landline local service, the Journal said Sprint majority ownership would provide an important tax advantage.

The New York Times said tax considerations could still sink any transaction.

Analysts will be looking to see how any merged company's board is configured, with a dominant partner usually holding more director seats. The Journal said a 50-50 director split is expected.

Sprint Chief Executive Gary Foresee would reportedly lead the company. Nextel boss Timothy Donahue would become executive chairman.

The terms would value the merger at about $36 billion and create a company with around $30 billion in annual wireless revenue.

On Friday, shares of Sprint (FON: news, chart, profile) fell 14 cents to $24.14. Nextel (NXTL: news, chart, profile) dropped 5 cents at $29.76. Both stocks rose sharply the day before, when reports of renewed talks first surfaced in the Journal. At Friday's closing price, a 1.3-to-1 stock swap provides a 5.4 percent premium to Nextel holders.

Sprint has a large consumer base and Nextel is the premier supplier of wireless service to mobile workers, with the highest monthly revenue per user in the industry. Yet Nextel has to spend several billion dollars to upgrade its technology and move to a new spot on the wireless spectrum. By joining forces, the two companies would save billions in expenses and obtain enough wireless spectrum to offer a variety of advanced wireless services. See earlier story.

Together, a Sprint-Nextel combination would serve 39 million wireless customers. That would put the pair behind Cingular, with 47 million subscribers, and Verizon Wireless, which has more than 40 million.

Cingular is owned by BellSouth (BLS: news, chart, profile) and SBC Communications (SBC: news, chart, profile). Verizon is jointly operated by Verizon (VZ: news, chart, profile) and U.K.-based Vodafone (VOD: news, chart, profile).

Beyond the phone competitors, Motorola could be hurt since it is the exclusive supplier of Nextel phones. Motorola shares (MOT: news, chart, profile) fell $1.38, or 7.8 percent, on Friday.

Qualcomm, which licenses the code division multiple access system that Sprint uses, could see its operations affected. Qualcomm shares (QCOM: news, chart, profile) fell 13 cents Friday to $43.30.