NEW YORK (Dow Jones)--Sprint Nextel Corp. (S) agreed to acquire affiliate iPCS Inc. (IPCS) - its last major independent affiliate - for $426 million, ending a legal battle between the companies.
Sprint has been acquiring its affiliates over the past several years after its 2005 buy of Nextel caused headaches for the combined company, including outcry from affiliates that saw their competitive position compromised.
The deal simplifies things for Sprint, which doesn't have to divest the assets it had in iPCS markets, Gabelli & Co. analyst Sergey Dluzhevskiy said. The No. 1 priority for the company going forward is to turn around its post-paid business, he added.
Sprint has been losing its most valuable contract subscribers at a startling rate. Chief Executive Dan Hesse has said repeatedly that he expects subscriber losses to stabilize, but Wall Street has been concerned about the declines, which have come while rivals continue to add subscribers.
Sprint's pre-paid segment has been stronger, with plans like those at its Boost Mobile unit sparking consumer interest. But in the post-paid space, Dluzhevskiy said, Sprint is trying to refresh its handset portfolio with the Palm Inc. (PALM) Pre and experimenting with pricing.
IPCS had been arguing that the Nextel acquisition violated an exclusivity agreement with iPCS, which is the Sprint affiliate in the territories in which it operates. In 2006, a circuit court judge ruled Sprint's operation of the Nextel network in iPCS's region violates its exclusive right to "own, operate, build or manage" the Sprint PCS network in its territory. IPCS has some 700,000 customers in a territory that covers 81 markets in seven states.
Sprint announced plans in June to sell network assets in several Midwestern states to comply with an Illinois court ruling to divest Nextel assets as part of the iPCS spat. That plan is now off in light of the acquisition.
Auriga analyst Chandan Sarkar said in the longer term he believes Sprint needs to merge with another company. The iPCS deal will make any such merger a little easier because it eliminates the possibility of litigation with iPCS lingering over Sprint, he added.
Under the agreement, expected to close late this year or early next year, Sprint will acquire iPCS for $24 a share, a 34% premium to Friday's closing price. IPCS' shares jumped 33% to $23.85 on more than 65 times their average daily volume in recent trading, while Sprint's shares were down 2 cents at $3.45.
Sprint will also assume $405 million in debt in the deal, which also smoothes the way for Sprint to sell both Nextel services and WiMax, which iPCS was also suing to block, in those territories.
Sprint spokesman Scott Sloat said the deal makes strategic sense for Sprint. In addition to helping to end outstanding litigation, it will provide $30 million in annual synergies and help the company fill in its existing wireless network.
Dluzhevskiy said the deal will allow Sprint to focus more on what it's doing with its network, including its 51% stake in a joint venture with Clearwire Corp. (CLWR). The companies have staked their claim to have the first 4G network in the U.S. As of now, Dluzhevskiy said, the WiMax networks rolled out by Clearwire are superior to 3G networks in a number of markets.
Sarkar said the price paid looks fair to Sprint, and the company said it's going to be cash flow positive. "I look at it as kind of a non-event for the stock," he said, but longer term he thinks it is a smart move.
http://online.wsj.com/article/BT-CO-20091019-707949.html
No comments:
Post a Comment