Sprint, the US telecommunications group, is close to reaching an agreement to acquire its rival, Nextel Communications, for more than $36bn. A deal could be announced as early as next week.
The proposed agreement, believed to be based mainly on a share swap, would create the third largest US mobile phone carrier with almost 40m subscribers and represent another big step in the consolidation of the US wireless market.
Neither Sprint nor Nextel would confirm the negotiations, however sources close to the talks said that under the plan, Sprint would swap 1.3 of its shares for each share of Nextel.
Sprint would also offer Nextel shareholders a small amount of cash that would give Sprint a slightly larger stake in the merged company. Based on the current stock prices, the paper element of Sprint's offer would value Nextel at about $31.95bn excluding the cash consideration.
Sprint's shares fell by 14 cents to $24.14 at the close before details of the proposed terms emerged, while Nextel's shares dropped 5 cents to $29.76.
The two companies are also understood to have agreed on the senior management of the merged company. Gary Forsee, Sprint's chef executive, would be the chief executive of the new company and Timothy Donahue, Nextel chief executive, will become executive chairman.
The proposed deal has the potential to shake up the overcrowded US mobile market with the creation of a strong third US wireless operator better able to challenge Cingular, which has 46m subscribers, and Verizon Wireless which has 42m. Together the three operators would have about 75 per cent of the US mobile market.
Cingular leapfrogged Verizon Wireless to become the largest US mobile operator when it completed its $41bn acquisition of AT&T Wireless last month. The fact that Cingular, which is jointly owned by SBC Communications and BellSouth, only had to make minimal concessions to win regulatory approval for the deal appears to have encouraged Sprint and Nextel to move ahead with their negotiations.
Industry analysts and telecommunications lawyers believe Sprint and Nextel would face few problems winning regulatory approval for a deal, although it is likely that Sprint would eventually have to spin off its traditional fixed wire telephone operations.
Despite a number of hurdles, analysts have generally welcomed news of the negotiations and arguing that a merger would provide benefits to both companies, and more broadly to investors in the US wireless sector.
While it is still possible that another bidder could enter the fray, this seemed increasingly unlikely on Friday. Rival operators including Deutsche Telekom's T-Mobile mobile unit Verizon Wireless and the UK's Vodafone were all closely watching the developments. But people close to the companies have indicated that none are considering making a bid.
Verizon Wireless, the US mobile joint venture between Verizon and Vodafone, is understood to have little interest in pursuing a bid for either mobile operator, partly because of antitrust concerns while Vodafone, which failed in its attempt to gain control of AT&T Wireless this year, a bid would risks further alienating its shareholder base. More importantly, according to people close to the company, Vodafone sees no technological synergies in acquiring Nextel or Sprint as both operators run networks operating on different technologies to GSM, the wireless standard used by Vodafone across its global operations.
