The end is near for Nextel Partners, but not without a fight. Shareholders in the Kirkland-based company voted overwhelmingly Monday to...
The end is near for Nextel Partners, but not without a fight.
Shareholders in the Kirkland-based company voted overwhelmingly Monday to sell the company to Sprint Nextel, which already owns 32 percent.
The only question left is: at what price?
The sister companies have already spent much energy over the issue in what has become a bitter public dispute. The fight, which could end with a several-billion-dollar deal, has manifested itself in various forms, including lawsuits and filings with the Securities and Exchange Commission.
Here’s how the Kirkland-based company sizes up as it prepares for the sale to Sprint Nextel:
Chief executive: John Chapple, who also helped found the company
Coverage area: 31 states, including 11 capitals. Boise is the nearest service territory to Nextel Partners headquarters.
Subscribers: 1.9 million
Cell sites: 4,084 (end of 2004)
At Monday’s stock price
of $25.42, the company is worth almost $8 billion.
Source: Nextel Partners
But Monday’s vote means the companies face a series of events carefully laid out in a 1998 joint-venture agreement between Nextel Partners and Nextel Communications, which merged with Sprint earlier this year.
The agreement, among other things, gave Nextel Partners the exclusive right to roll out Nextel-branded services in midsize and small markets. It also gave shareholders the right to a buyout, called a “put right,” if control of Nextel Communications were to change.
Under the agreement, both companies must now hire appraisers to determine how much Sprint Nextel will have to pay for the company. If the two appraisals are more than 10 percent apart, a third appraisal will set the price.
Nextel Partners has hired Morgan Stanley to set a value for the company; Sprint Nextel has until Nov. 13 to announce its representative.
The central debate can be traced back to Nextel Partners’ stock price, which has jumped in the months since word that a buyout may be coming. Sprint Nextel claims Nextel Partners has unfairly tried to boost its stock price. Nextel Partners claims that Sprint Nextel has attempted to drive it down.
As an example, Nextel Partners last week reported a portion of its third-quarter earnings before Thursday’s full release, saying it had added a record number of subscribers. The same day, Sprint Nextel filed a lawsuit against Nextel Partners, alleging mismanagement, breach of fiduciary duty and misconduct.
Nextel Partners shareholders’ agreement to sell the company to Sprint Nextel sets off a series of events.
Monday: Nextel Partners shareholders, acting on a right outlined in a joint venture agreement with Nextel Communications, voted to sell the company to Sprint Nextel. The price is to be determined by appraisers.
Nov. 13: Nextel Partners and Sprint Nextel each must choose an appraiser to determine the value of Nextel Partners.
Dec. 13: The two appraisers will meet to discuss a valuation.
Dec. 28: The appraisers’ valuations are made public. If the two are more than 10 percent apart, a third appraiser is selected to determine the final price.
Feb. 11: The third appraisal sets the final price.
March 3: Deadline for the appraisal to be challenged.
Source: Nextel Partners
In an analyst note, Jennifer Fritzsche, a director of equity research at Wachovia Securities, said the timing of the two events is interesting.
“We find it quite the coincidence that Sprint Nextel decided to file this lawsuit on the very same day that [Nextel Partners] previewed strong … subscriber and revenue results,” she wrote. “As such, we think this is yet another scare tactic on the part of Sprint in an effort to pressure [Nextel Partners] shares and acquire the company at a lower price.”
At Monday’s shareholders meeting, Fritzsche said she thinks Nextel Partners could fetch anywhere from $33 to $38 a share based on its growth, which would put the acquisition price at near $12 billion on the high end. The company’s stock price closed Monday at $25.42 for a market capitalization of almost $8 billion (based on about 300 million shares).
The final price is unlikely to be known until Feb. 11 when the third appraiser’s determination would be due.
Nextel Partners Chief Executive John Chapple, who presided over Monday’s meeting, said afterward that the idea to start the company came in 1997.
Craig McCaw, who was running Nextel Communications after selling his McCaw Cellular Communications to AT&T, asked Chapple to start a company alongside Nextel. Nextel Communications had hit a roadblock and was unable to raise more capital, yet it needed to build out service in more markets to compete with other carriers, Chapple said.
Chapple said he would help under three conditions: He would need the latitude to run the operations day to day; the company would have to own spectrum licenses for itself; and most important, Nextel Partners would have to be able to force a buyout if Nextel Communications were ever sold.
McCaw agreed. Chapple, who had worked at McCaw Cellular with McCaw, said the final condition was critical because he knew McCaw all too well. McCaw “orphaned” him when he sold McCaw Cellular and Chapple was left working at AT&T. “I said I have to have the put,” he said.
Nextel Partners was formed a year later in 1998 and went public in 2000. In all, the company raised $3.5 billion, including at the public offering, and built out service in 31 markets. Today, it has 1.9 million subscribers.
Chapple said it has been difficult to see the hostility between his company and Sprint Nextel.
“For so many years, we worked in a collective fashion. To have things thrown into an adversarial realm is hard,” he said. “We aren’t the enemy. Why nickel and dime someone who helped save the company?”
Leigh Horner, a Sprint Nextel spokeswoman, said Monday that both companies knew about the buyout option.
“When Sprint Nextel came together, we knew about it and the process we are going through today is part of that process,” she said. “It is something that both companies anticipated.”
Tricia Duryee: 206-464-3283 or email@example.com