NEW YORK - Telecommunications giant Sprint Corp. is acquiring Nextel
Communications Inc. in a $35 billion deal that would create the
nation's third largest wireless telephone service provider.
The widely rumored transaction, announced Wednesday, would create a
company called Sprint Nextel with about $40 billion in combined
yearly revenue and more than 35 million wireless subscribers, trailing
only Cingular Wireless and Verizon Wireless.
Sprint would get access to Nextel's 15.3 million subscribers, many of
whom are business customers, and Nextel would avoid a costly upgrade
of its own network. The companies estimated the merger would save them
$12 billion in operating costs and network upgrades.
The combination comes as the cost of wireless calls continue to drop
and the industry begins to look like the long-distance business looked
five years ago: Three big competitors constantly undercutting each
other's prices.
After completion of the deal, which the companies described as a
merger of equals, Sprint's local telecommunications business would be
spun off to the combined firm's shareholders. The local telecom
business accounted for about $6 billion of their combined revenues.
Sprint chairman and chief executive Gary D. Forsee will become
president and CEO of Sprint Nextel, and Timothy M. Donahue, currently
president and CEO of Nextel, will become chairman of the new company.
The new company's board would consist of 12 members with six from each
company.
"This merger positions Sprint Nextel for greater success than either
company could have achieved alone," Forsee said in a statement.
Sprint currently ranks as the nation's third biggest wireless company
as well as the third largest in long-distance service. Nextel ranks
fifth in U.S. wireless service.
Nextel agreed last month to move its network to a more expensive band
of broadcast spectrum because of fears of interference between its
phones and emergency response radios.
Now, according to a press release from the companies, Sprint's
next-generation technology will be used for the combined network.
After the takeover, the three largest wireless companies will carry
about 75 percent of traffic, according to telecom analyst Jeff Kagan.
At the top is Cingular Wireless, a joint venture between BellSouth
Corp. and SBC Communications Inc. that recently completed the $41
billion acquisition of AT&T Wireless. No. 2 Verizon Wireless is a
joint venture owned by Verizon Communications Inc. and Vodafone Group
PLC, the world's largest mobile-phone operator.
Under terms of the deal, Sprint shareholders would get one share of
the new company for each Sprint share while Nextel shareholders would
get the equivalent of 1.3 Sprint Nextel shares for each of their
shares.
At today's rates, each Nextel share would be exchanged for 1.28 Sprint
Nextel shares and 50 cents in cash.
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