Nextel stockholders will receive about 1.28 shares in the new company and $0.50 in cash for each Nextel share, valuing the stock at $32.63, the companies said in a statement.
Existing Sprint shares will remain outstanding and Nextel shares will be converted into shares of the new company and a small amount of cash, valuing each Nextel share at about 1.3 shares of Sprint Nextel common stock. Both companies are being equally valued, and their shareholders will each own approximately 50% of the new company after the merger.
Nextel is currently the fifth-ranked mobile operator in the US, and is principally known for its push to talk mobile phones. Sprint on the other hand is the third biggest long-distance phone company in the US, and is also the number-three mobile operator.
Sprint and Nextel have a combined total equity value of $70 billion and after the merger will have 35 million mobile customers, with an additional 5 million subscribers through affiliates and partners. This will rank it in third place in the US, behind current market leader Cingular Wireless LLC with 47 million customers and second place Verizon Wireless with 42.1 million customers. Deutsche Telekom AG’s T-Mobile USA Inc is a distant fourth with only 16.3 million customers.
The new company will be known as Sprint Nextel and is expected to have the highest average revenue per user in the US mobile industry. This is because Nextel’s business customers, who pay higher monthly bills, are generally considered to be the most loyal among national wireless carriers. Nextel’s average monthly bills are $69, and its monthly rate of customer turnover, or churn, was 1.5% in the third quarter, compared with Sprint’s $63 in average monthly bills, and churn of 2.7%.
It was also revealed that following the merger, the fixed-line operation will be spun off to shareholders of the new company. The unit had 7.72 million lines in 18 states including Nevada and Florida as of September. Once the unit is spun out, the combined Sprint-Nextel will stop paying a dividend.
Sprint’s Gary Forsee will be CEO of the new Sprint Nextel, and Nextel CEO Timothy Donahue will be executive chairman. Sprint Nextel will be based in Nextel’s headquarters in Reston, Virginia, and have an operational base in Sprint’s Overland Park, Kansas, headquarters. The board will be equally split between the two companies.
The deal will allow Sprint Nextel to take on Verizon, take on Cingular said Nextel CEO Donahue at a press conference. Combined, the companies will have 78,000 employees, but there will be headcount impacts said Sprint’s Forsee.
Sprint and Nextel said they expect savings of about $12 billion from the deal, from reductions in capital spending and operating costs. They expect integration costs to be between $1 billion and $1.3 billion in 2006, and an additional $200 million to $500 million in 2007.
There are some concerns about the difficulties of merging Sprint’s PCS network and Nextel’s push-to-talk technology. Both companies have different technologies catering to different customers; Sprint is more consumer-focused, while Nextel is business-focused, and the integration of the two networks is likely to be expensive.
The deal, which is subject to shareholder and regulatory approval, is expected to close in the second half of 2005.
