Sprint and Nextel merger will create another huge cell phone company, but will have little effect on their customers’ lives in the immediate future.
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 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.
In terms of impact on shareholders, the merger is unlikely to have a drastic impact on prices, at least company officials promise to keep them where they are now.
Sprint and Nextel customers can keep their customers at least until 2007. After that Nextel proprietary system may be discontinued. To address the issue of technology incompatibility, both companies will introduce a "gateway" allowing Sprint’s Ready Link customers to conduct push-button conversations with Nextel users, however, an additional fee for this service is to be expected. Sprint users will only be able to use Nextel system in 2006. Nextel customers will be able to get access to Sprint’s most competitive feature, high-speed network, through a data card to be used in a laptop.
Read Also: