Sprint Nextel, the third-largest US mobile carrier, agreed to pay $6.5bn to buy the shares in Nextel Partners, its biggest affiliate, that it does not already own. The agreement, based on a price of $28.50 a share, ends months of arguments over the put option price.
Sprint Nextel already owns 32 per cent of Nextel Partners following Sprint’s $36bn acquisition of Nextel Communications in August – a deal that triggered the put option in an agreement between Nextel and Nextel Partners. The latter sells the Nextel service in second-tier markets across the US.
The offer, which is slightly below most Wall Street analyst estimates, is based on the average assessment of the appraisers appointed by Sprint Nextel and Nextel Partners. Morgan Stanley, working for Nextel Partners, determined Nextel Partners’ fair market value to be $9.6bn, or $29.75 a share. Lazard, working for Sprint, arrived at a value of $8.8bn, or $27.25 a share.
The timing took investors by surprise because the appraisers were not expected to report their findings until next week.
Sprint Nextel is paying an 8.3 per cent premium over Nextel Partners’ closing price on Monday and roughly a 50 per cent premium over the price of the stock in mid-December 2004 before the announcement of the Sprint/Nextel merger. Nevertheless, it was seen as a positive for Sprint Nextel.
“This removes a significant overhang around the duration of the put process and potential litigation,” said Jason Armstrong of Goldman Sachs, in a note to investors. “Investors are now closer to Sprint Nextel in its ultimate form, which means post-affiliate and Partners purchases and post the local business spin-off.”
David Barden of Bank of America added: “We believe Sprint Nextel negotiated a valuation lower than the mean expectation in the market and in the past, the stock has reacted well to various press reports that an early conclusion of the negotiations was possible.”
Reston, Virginia-based Sprint has spent more than $11bn since completing
its acquisition of Nextel Partners to acquire affiliates of the two companies, many of which have gone to court to challenge the deal or, as in the case of Nextel Partners, argue over valuation terms.
The acquisitions, including that of Nextel Partners, will add more than 4.2m customers to Sprint Nextel’s 45.6m direct and indirect customers, consolidating the group’s position as the third- largest US wireless network operator behind Cingular Communications and Verizon Wireless.
The deal, which is subject to approval by the Federal Communications Commission and the Department of Justice, is expected to be completed by the end of the second quarter of 2006.