Sprint and Nextel boards have approved a definitive merger deal.
As expected, Nextel stockholders will receive 1.3 shares of the new business, to be called Sprint Nextel, plus about 50 cents in cash for each of their shares.
The deal is expected to close during the second half of 2005.
Sprint Corp. and Nextel Communications Inc., No. 3 and No. 5 U.S. cell phone companies, have joined their efforts in the mobile phone industry to create a company with 33 million customers and joined market value of about $35 billion.
The merger will help Sprint get closer to the No.2 in the market Verizon Wireless with 42 million customers. The combined company could have as many as 39 million customers.
The deal follows the merger between and AT&T Wireless that moved Cingular to the No.1 position in the wireless market. At the moment, 70% of the market is in the hands of three companies.
The acquisition could help both companies to slash costs by merging overlapping operations. However, it could lead to some technological problems due to the incompatible wireless systems used in the companies’ networks.
The deal could jeopardize the prospects of Motorola that may lose exclusive deal to supply phones and equipment to Nextel opening up new possibilities for Lucent Technologies and Nortel Networks. The merger is likely to force Nextel to abandon its iDEN technology asking customers to turn in their handsets.
A lot of analysts have noted the incompatibility of the technologies used by the two companies. Sprint is likely to force former Nextel customers to use its C.D.M.A., or code division multiple access technology.
The advantage for both companies will be the diversification of their customer base. At the moment, Nextel positions itself at the high end of the market, while Sprint is focused on the mass market including families and teenagers.
Sprint Chairman and Chief Executive Gary Forsee is believed to become chief executive of the combined company, and Nextel Chief Executive Tim Donahue could make executive chairman, splitting the board of the directors between the two companies in even proportions.
The offer is based on the valuation of Nextel share at about $32.63, against closing price Nov. 30 of $28.46. Nextel has 1.08 billion shares outstanding.
Shares of Nextel closed at $29.99 on Tuesday. Sprint was up 66 cents, or 2.7%, to close at $25.10.