On the fifth day before Christmas, Sprint Nextel gave Nextel Partners a gift worth $6.5 billion by agreeing to buy the rest of the Kirkland...
On the fifth day before Christmas, Sprint Nextel gave Nextel Partners a gift worth $6.5 billion by agreeing to buy the rest of the Kirkland company.
The price tag, at $28.50 a share, puts Nextel Partners’ overall value at $10 billion, since Sprint Nextel already owned 32 percent of the wireless carrier. The price represents an 8 percent premium over the company’s recent stock price.
The deal announced Tuesday also marks the end to a bitter ordeal that could have spilled into the new year.
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“There was a blip, or a period if you will, that we thought was unfortunate. But we are glad to see that it has gone by the boards,” said John Chapple, founder and chief executive of Nextel Partners. “In the end, we can consummate the marriage on a positive note, just like we did the birth.”
The deal, which must receive regulatory approval, is expected to close in the second quarter of 2006.
Sprint Nextel’s stock fell 17 cents Tuesday to close at $24.47. Nextel Partners’ stock increased $1.52 to close at $27.84.
The purchase follows the merger between Sprint and Nextel Communications in August. Since then, Sprint Nextel has been acquiring Sprint affiliates, which served specific geographies. Nextel Partners was Nextel Communications’ only affiliate and is the largest of all the affiliates, serving 1.9 million subscribers.
Nextel Partners was a special case.
Seattle wireless pioneer Craig McCaw came up with its concept after investing millions of dollars to rebuild Nextel Communications.
The idea was for Nextel Partners to serve rural and small cities for Nextel Communications, which didn’t have the resources to build out a network in less populated areas.
McCaw asked Chapple to take charge of starting the affiliated company. Chapple had worked at McCaw Cellular Communications before McCaw sold it to AT&T in 1994.
Nextel Partners was formed in 1998 and went public in 2000. In all, the company raised $3.5 billion, including in its initial public offering.
As part of the deal, Chapple negotiated a joint-venture agreement that stipulated if Nextel Communications were ever sold, Nextel Partners’ shareholders could force the acquiring company to buy their shares at a competitive price. The process is called a “put right.”
The agreement said the price would be determined by two appraisers hired by each company. If the appraisers were more than 10 percent off, a third would set the final price.
The process started this fall, with Nextel Partners hiring Morgan Stanley and Sprint Nextel hiring Lazard Frères. The appraisers came up with values within 10 percent apart of each other, eight days before the Dec. 28 deadline to submit valuations. The two appraisers averaged the valuations to set the final price, as called for in the agreement.
The early submission came as a surprise to many who thought it would take a third appraiser to settle the ordeal.
“We hit a rocky patch, but the possibility was there in my mind. I never ruled out the idea that the two appraisers might come to a reasonable conclusion,” Chapple said.
Leigh Horner, a Sprint Nextel spokeswoman, said: “Going into the process, we had disagreements in the way it was drafted, but it worked the way it was supposed to work. The design of the structure was to determine fair market value for [Nextel] Partners, and that’s exactly what happened.”
But that was hard to see based on the interactions between the two companies over the past few months.
The bickering can be traced back to Nextel Partners’ climbing stock price. Sprint Nextel claimed Nextel Partners was unfairly trying to boost its shares. Nextel Partners claimed Sprint Nextel was trying to drive the price down.
At one point, the two filed lawsuits and news releases hours apart.
In October, Nextel Partners reported a portion of its third-quarter earnings, saying it had added a record number of subscribers. The same day, Sprint Nextel sued Nextel Partners, alleging mismanagement, breach of fiduciary duty and misconduct.
Much of the battle took place in court. But Chapple also saw the soured business relationship damage his friendship with Tim Donahue, the former chief executive of Nextel Communications and current Sprint Nextel executive chairman.
The only communication the two had was about restoring service in the markets hit by Hurricane Katrina, Chapple said in October.
Now Chapple credits Donahue for keeping communication open during the appraisal process.
“Tim was instrumental in getting this,” he said. “Post all of this, Tim will remain a friend. We had a period where there were some bumps in the road, but at the end of the day, I guess, you see your way.”
What happens next is largely unknown.
Nextel Partners has 60 employees in Kirkland and 3,000 employees nationwide. Chapple said Sprint Nextel has publicly stated that most job reductions could be handled through attrition, but that it was too early to say.
Sprint Nextel’s Horner said the companies are expected to operate independently until they receive federal regulatory approval.
Chapple said he will stay as long as needed. He could get up to $3.3 million, or the equivalent of three years’ salary, in severance. He’ll get $57 million more from the stock he owns, not including options.
When it comes to the sale of Nextel Partners, Chapple said he doesn’t expect it to affect the Northwest’s wireless reputation significantly, even though it follows a string of acquisitions.
In 2004, Cingular bought AT&T Wireless in Redmond. Last summer, Alltel bought Western Wireless in Bellevue.
“There’s a potential to exist for some proven quality talent to continue as part of this new relationship,” Chapple said. “I don’t think one should jump to conclusion that the expertise in the industry will be moving out of the area.”
Tricia Duryee: 206-464-3283 or firstname.lastname@example.org