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Sprint may OK Nextel deal today
Posted on Tue, Dec. 14, 2004

Signs indicate talks are in final stages

By SUZANNE KING and DAVID HAYES The Kansas City Star

http://www.ledger-enquirer.com/mld/ledgerenquirer/business/10410257.htm

Sprint Corp.'s board of directors, which on Monday gathered in Overland Park, could vote on a merger with Nextel Communications this morning.

If the board approves the deal during its regularly scheduled meeting, company officials are expected to announce the merger in New York on Wednesday.

Sprint's top two executives, chairman and chief executive Gary Forsee and president and chief operating officer Len Lauer, have reservations to stay at New York's St. Regis Hotel tonight.

Officials with both companies have declined to confirm that merger discussions are under way.

Speculation about the deal has been swirling for almost a week. Barring a last-minute hitch, all signs indicate that negotiations are in the final stages.

According to various reports, based on unnamed sources, Nextel stockholders would receive 1.3 shares of Sprint for each share of Nextel. A modest amount of cash would be included in the $35 billion deal. A new company, called Sprint-Nextel, would have executive headquarters in Reston, Va., with an operations headquarters in Overland Park.

Forsee reportedly would be chief executive of the merged company, while Timothy Donahue, Nextel's top executive, would become executive chairman.

The potential merger has been widely supported in the investment community, which sees the combination as a way for the third- and fifth-largest wireless carriers to compete with Cingular Wireless and Verizon Wireless, the two largest competitors in the market.

Consumer groups, meanwhile, have expressed concern about further consolidation in the wireless industry leading to reduced service and higher prices.

For Sprint, the merger would be aimed at ensuring its place in the tumultuous telecom industry. In recent years, Sprint has gone through a failed merger attempt with WorldCom Inc., now known as MCI; severe job cuts as it struggled to survive industry turmoil; and a difficult changeover in the executive suite.

The proposed merger also would be yet another change for Nextel, which is known as a “scrappy” company that has managed to make the most out of less-than-desirable circumstances.

Nextel was formed in 1987 by Morgan O'Brien, a former Federal Communications Commission lawyer. O'Brien believed that truckers, blue-collar workers in the field, cab companies and fleet operators would be more comfortable with SMR — Specialized Mobile Radio — than with cell phones. So he and a consortium bought up radio dispatch licenses across the U.S.

Their company, First Call, went public in 1992 and changed its name to Nextel in 1993.

The company was built by rolling up many operations, including odd bits and pieces of wireless spectrum.

“When they came to the market, they were really considered the poor stepchild,” said Michael Kleeman, a fellow in technology at the University of California in San Diego.

For a long time the company limped along, struggling for funding and grappling to come up with technology that would allow its network to compete in the fiercely competitive wireless space.

A project to convert Nextel from analog to digital nearly failed before wireless pioneer Craig McCaw invested $1.1 billion in the company beginning in 1995.

The cash infusion allowed Nextel to launch its walkie-talkie-like cell phone service — push-to-talk — across the country. That technology, built on Motorola's integrated digital enhanced network, proved to be Nextel's trump card.

The service appealed to small- and midsize companies with employees who worked in the field.

“They were always viewed as sort of the blue collar of the industry. My response has always been, ‘Yeah, and so is Wal-Mart,' ” said Joe Gensheimer, former general counsel for Sprint PCS. “They've really taken a lot of little operations and done a terrific job of turning their push-to-talk service into an incredible selling point.”

Since calls made using the walkie-talkie service stay on Nextel's network, the company avoids fees that companies have to pay when carrying regular cell phone calls.

Nextel also has built intense loyalty among its customers.

That's an indication of Nextel's strong marketing skills, said Richard Nespola, chief executive of the Management Network Group, an Overland Park telecommunications consulting firm.

Currently, the company is faced with another technological transition. To keep pace with consumers and companies that want Internet access on wireless phones, Nextel has been studying major technology upgrades for the past year.

The move also is necessary because Nextel's current service interferes with fire and police radio systems in many communities.

Earlier this year, Nextel asked for proposals to convert its network to one of two other technologies — Flarion or CDMA, the same technology used by Sprint.

With more than $9 billion in debt, Nextel faces almost doubling that figure in the next few years to upgrade its network and meet federal requirements.

In fact, the technological challenges Nextel is facing led one research firm to speculate that Sprint would be overpaying if it pays more than $30 a share.

Deutsche Bank analysts said Monday Nextel had “secured an exceptionally good deal” for shareholders by “playing Sprint's insecurity” about its size.

Investors apparently do not agree. Sprint shares closed Monday at $24.44, up 30 cents. Nextel also closed higher, up 23 cents, to $29.99.

To reach Suzanne King,

call [phone] or send e-mail to [e-mail].

To reach David Hayes, call [phone] or send e-mail to [e-mail].