Nextel Communications and Sprint are negotiating a possible merger, according to a source familiar with the discussions. It was not clear how far the talks had progressed, and...
WASHINGTON Nextel Communications and Sprint are negotiating a possible merger, according to a source familiar with the discussions.
It was not clear how far the talks had progressed, and some analysts questioned whether a deal combining Nextel, the nation’s fifth-largest mobile-phone carrier, and Sprint, the third-largest, would be made.
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A merger would give Reston, Va.-based Nextel access to Sprint’s high-speed data network, saving Nextel more than $2 billion it has been planning to spend to build its own.
It would give Sprint of Overland Park, Kan., access to Nextel’s well-regarded management team and its business-oriented customer base, which produces the cell-phone industry’s highest revenue per customer.
Both companies declined to comment on the merger talks, which were first reported yesterday by The Wall Street Journal and CNBC. Nextel’s stock closed up 7 percent at $29.81. Shares of Sprint rose 8 percent to $24.28.
A Nextel-Sprint merger could give a combined company the heft to compete with the industry leaders in a time of consolidation.
Together, the two would have about 39 million subscribers, said Rick Black, an analyst with Blaylock & Partners, behind Cingular Wireless’ 47 million customers and Verizon Wireless’ 42 million.
Cingular became the biggest wireless-service provider through its recent $41 billion acquisition of Redmond-based AT&T Wireless Services.
Nextel was founded in 1987 and grew by acquiring walkie-talkie licenses from taxicab dispatch operators. The cobbled-together system proved to have a big advantage: Nextel’s push-to-talk feature, with its instant call connections, was especially attractive to business customers.
In 1995, Seattle cellular pioneer Craig and his family invested $1.1 billion in Nextel and spearheaded the debt-laden Nextel’s return from the brink of bankruptcy.
Nextel expanded its product and service offerings. Today it has about 18,000 employees nationwide, including about 2,500 in the Washington, D.C., area.
Current Chief Executive Timothy Donahue has worked to raise the company’s profile. The company stepped up its Washington lobbying efforts and signed a deal, reportedly worth $700 million to $750 million, to put its name on NASCAR’s leading racing series.
Nextel also won initial approval from the Federal Communications Commission for a multibillion-dollar swap of broadcast frequencies that would give it a better part of the communications spectrum while eliminating conflicts with public-safety communications.
Some industry analysts said a Nextel-Sprint combination would make sense.
“Both companies have interesting things to bring to the table, and creating a wireless company that could compete with the big boys is an interesting proposition,” said Gregory Teets, a telecom analyst with A.G. Edwards & Sons.
“Nextel is known for having a very good management team, very good customer service,” he said. “Sprint brings a relatively advanced network.”
A merger with Sprint would simplify Nextel’s choice for a technology to provide higher-speed data services.
Nextel has been looking at the CDMA technology used by Sprint and another technology, and has said it wants to install one nationwide by the end of 2007, said Will Power, an analyst at Robert W. Baird & Co. in Dallas.
“By potentially linking up with Sprint, they accelerate their ability to be in the marketplace with a higher-speed data network by almost two years, in theory,” he said.
However, some analysts said the merger would be difficult to pull off.
Because the companies are roughly the same size, the deal is likely to be framed as a merger of equals. Such a deal could be problematic, analysts from Goldman Sachs wrote in a research report.
“We think that Nextel has more to gain than Sprint and therefore would have to have that value reflected in the transaction,” the report said.
Sprint has a market capitalization of $33.1 billion, compared with Nextel’s $31 billion. But Nextel has been much more profitable, earning $1.53 billion on $10.82 billion in revenue in 2003.
Sprint earned $1.2 billion on revenue of $26.2 billion in that year.
While the deal would narrow the number of major wireless competitors to four, a source close to federal regulators suggested it would be likely to withstand regulatory scrutiny.
Material about CDMA from the Dallas Morning News was included in this report.