Sprint Corp. announced yesterday it would merge with Chicago-based Centel Corp. in a $2.85 billion stock swap to form the nation's first phone company that offers local, long-distance and cellular services.
Sprint is the second-largest independent telephone company in the United States. The company's local telecommunications division owns and operates local phone companies in 17 states, with more than 4 million customers.
The combined company, which would keep the Sprint name, would not change Sprint's status as the nation's third-largest long-distance company, but it would bolster Sprint's position in the market for local phone service, providing 1.6 million more customers.
The merger also would make Sprint a major factor in the cellular-phone business overnight, turning it into the nation's eighth-largest cellular operator in a business it abandoned just a few years ago.
The combined company would have annual revenues of $10 billion and 52,300 employees worldwide.
Centel, which had 1991 revenues of $1.18 billion, has about 9,300 employees. Sprint, with 1991 revenues of $8.8 billion, employs 43,000. The company changed its name this year from United Telecommunications.
The merger is subject to approval by the shareholders of both companies and by regulatory agencies.
Under terms of the merger, each share of Centel's common stock would be converted into 1.37 shares of Sprint's common stock. Sprint has 219 million shares outstanding, and Centel has 85 million.
Centel shareowners would own about 35 percent of the combined company.
"At first blush it appears Sprint did pretty well," said Michael Balhoff, a telecommunications analyst at Legg Mason Wood Walker in Baltimore. "It is picking up some local exchange business, which Sprint runs very well, and some cellular business."
Sprint would pay about $33.57 for each share of Centel, Mr. Balhoff said. On the New York Stock Exchange yesterday, Sprint closed at $24.50, Centel at $42.50.
Sprint would assume Centel's cellular operations, which have more than 20 million customers across the United States. Centel has cellular operations in dozens of cities, including Chicago, New York, Houston and Kansas City, Mo. Centel also provides cellular services in more than 50 rural areas.
"The strategic value of this combination is that one plus one really does equal three," said William T. Esrey, chairman and chief executive officer of Sprint.
He would remain chairman and chief executive officer of the merged company, which would be based in Sprint's corporate home, Kansas City, Mo.
Jack Frazee, chairman and chief executive of Centel, would be president and chief operating officer of the new company with responsibility for local phone operations, cellular operations and strategic planning.
Shareholder meetings to act on the merger are expected to be held late this summer. The companies said the merger will be closed as soon as possible after that.