Sprint Corp. is in advanced talks to buy Nextel Communications Inc. for more than $36 billion in a mostly stock deal that would combine the No. 3 and No. 5 U.S. wireless service carriers, sources familiar with the situation said on Friday.
Under the terms currently being considered, Sprint aims to pay 1.3 shares of Sprint stock for each share of Nextel. It also would pay a small amount of cash that would give Sprint a slightly larger ownership stake in the company for tax purposes, sources said.
An agreement could be announced early next week, barring any complications, the sources said.
Based on the current stock prices, Sprint’s offer would value Nextel at $31.95 in stock, plus some cash. The companies declined to comment.
Analysts said a Sprint-Nextel merger would face several hurdles due to the incompatible wireless technologies used in their networks. But the companies still would benefit by gaining more wireless spectrum to transmit calls and a broader customer base.
Nextel currently caters to high-paying corporate customers with its walkie-talkie-type telephones, while Sprint has targeted mass-market customers such as families and teenagers.
“We believe that a potential combination of Sprint and Nextel would make sense on a number of measures, including spectrum position, network technology upgrade path and the complementary nature of the two customer bases,” Merrill Lynch analyst James Moynihan said in a research report.
Nextel shares, which traded down all day, jumped nearly 4 percent after Reuters first reported the expected exchange ratio on the deal.
At the close of trading, Nextel shares were down 5 cents on the day to $29.76. The shares were pulled off their day’s highs after Sprint shares fell nearly 4 percent on the news. At the close of trading Sprint shares were down 14 cents, or .58 percent, at $24.14.
The companies, which have held on-again, off-again talks over the past year, renewed negotiations in recent days for an all-stock deal that would create a wireless company with about 39 million customers, sources said.
A deal may involve Sprint eventually spinning off its traditional telephone business so a combination between Nextel and Sprint would be a pure wireless company, the sources said. The combined company might keep both the Nextel and Sprint brand names, the sources said.
Nextel’s stock slumped earlier in the day as investors feared the company could be left without a partner if a rival emerged with a bid for Sprint, analysts said.
Media reports said Verizon Wireless, the No. 2 U.S. wireless company, could be interested in making a bid for Sprint.
Yet Verizon Wireless, jointly owned by Verizon Communications Inc. (VZ.N) and Britain’s Vodafone Group Plc (VOD.L), previously looked at the assets of both Sprint and Nextel and decided not to make an offer for either, sources familiar with the situation told Reuters.
Verizon Wireless declined to comment.
Although Nextel lacks an abundance of wireless spectrum, it boasts some of the most loyal and lucrative corporate customers, drawn by its “push to talk” walkie-talkie phones. It also has among the highest average revenues per user and a strong brand name.
“If you put the two companies together, and Nextel becomes just average, then what does that mean for Nextel’s stock price?” said Tom Egan, a high-grade telecommunications credit analyst at HSBC Securities in New York.
A merger would continue the long-awaited consolidation in the fiercely competitive U.S. wireless industry.
No. 1 U.S. cell phone company Cingular Wireless, a joint venture of SBC Communications Inc. and BellSouth Corp., kicked off the year with a bidding war for AT&T Wireless Services Inc., which it bought for $41 billion. But there are still five large national mobile phone companies --Deutsche Telekom AG’s T-Mobile USA is No. 4 -- as well as several regional players.
“We believe consolidation in wireless may ultimately increase levels of competition in the sector, which is good for consumers, regulators and providing scale to a third competitor,” said Michael Bowen, an analyst with Friedman, Billings, Ramsey & Co.
Based on Thursday’s closing share prices, Sprint’s market capitalization is more than $34 billion and Nextel’s is about $33 billion.