Sprint to acquire US Unwired

$1.3 billion deal ends two years of fighting

July 12, 2005|By BLOOMBERG NEWS

NEW YORK - Sprint Corp., the No. 3 U.S. mobile-phone carrier, agreed yesterday to buy US Unwired Inc. for $1.3 billion to silence a critic that had sued to block Sprint's planned purchase of Nextel Communications Inc.

US Unwired stockholders will receive $6.25 a share in cash, Sprint said. US Unwired, a seller of Sprint services to 500,000 customers in nine states, told a federal court last month that the Sprint-Nextel deal would make Sprint a competitor and breach terms of their sales agreement. Yesterday's acquisition halts that litigation, the companies said.

The US Unwired purchase ends two years of fighting between the companies and removes a hurdle to the $35 billion Nextel acquisition. It lets Sprint Chief Executive Gary Forsee focus on objections from Nextel affiliate Nextel Partners Inc. US Unwired shares have surged 42 percent since the Nextel deal was announced in anticipation that Sprint may buy the company to resolve disputes.

"It's a slight negative," for Sprint, said John Krause, an analyst at Minneapolis-based Thrivent Financial for Lutherans, which manages 1.9 million Sprint shares among $65 billion in assets. "It appears that they were coerced into a settlement."

In 2003, US Unwired accused Overland Park, Kan.-based Sprint of "materially weakening" the company and pushing it toward bankruptcy by raising network-access fees and forcing it to accept sub-prime customers.

Sprint is paying 1.5 percent more than US Unwired's July 8 closing price. Shares of US Unwired rose 4 cents to close at $6.20 yesterday on the Nasdaq stock market. Sprint's shares added 7 cents to $25.45 on the New York Stock Exchange.

By enlarging the territory served by Sprint and Nextel, the combination would put the new company into competition with smaller carriers that have non-compete agreements with one or the other larger company.

"This transaction is the first, but certainly not the last, in which Sprint Nextel will need to either acquire or directly compensate its affiliates at or shortly after the close of the Sprint Nextel merger due to the likely violation of the exclusivity terms of its affiliate agreements," Legg Mason analyst Christopher King wrote in a research note.

UbiquiTel Inc. and Alamosa Holdings Inc. jumped to their highest levels in at least a year. Shares of Conshohocken, Pa.-based UbiquiTel rose 85 cents, or 10 percent, to $9.10. Shares of Lubbock, Texas-based Alamosa Holdings climbed $1.15, or 8.3 percent, to $15.47.

Investors with about 27 percent of US Unwired stock have agreed to tender the shares, Sprint said. As part of the agreement, Sprint also will assume US Unwired's debt, which totaled $266 million in March. The acquisition probably will be completed in the third quarter, Sprint said.

US Unwired had filed the lawsuit in U.S. District Court in Lake Charles, La. Nextel operations in southeastern U.S. states would have brought the enlarged company into competition with US Unwired, which sells wireless calling, the suit said. The deal would violate terms of agreements that let US Unwired use the Sprint brand in parts of Texas, Louisiana and Georgia without competition from Sprint. US Unwired, which first sold shares to the public in 2000, wanted to make sure Sprint doesn't buy the overlapping operations.

"Their main agenda was to get Sprint to purchase them," said Thomas Watts, an analyst at SG Cowen & Co. in New York. "That's what caused this to happen now."

US Unwired has 32 stores operating under the Sprint name. The company sells wireless service in 48 markets, primarily in southeastern states.

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