Sprint Nextel to buy affiliate in deal valued at $6.5 billion

KANSAS CITY, Mo. -- Sprint Nextel Corp. said Tuesday that it would buy outstanding shares of Nextel Partners Inc. in a deal valued at $6.5 billion, or $28.50 per share, settling a battle with its largest affiliate.

Nextel Partners shareholders had approved a provision in October that required Sprint Nextel to buy two-thirds of the company it doesn't already own. Including the one-third shares that Sprint Nextel already owns in the affiliate, the deal puts the value of Nextel Partners at about $10 billion.

After Sprint Corp. acquired Nextel in August for $35 billion, several affiliates that provide wireless service to rural areas and smaller cities not served by Sprint or Nextel sued, saying the acquisition violated the companies' agreements not to compete with the affiliates in their territories.

Sprint Nextel and Nextel Partners engaged in a monthslong fight over the value of the affiliate, which is based in Kirkland, Wash. The value announced Tuesday was determined by an appraisal process outlined in Nextel Partner's certificate of incorporation. Sprint Nextel is based in Reston, Va., and has operational headquarters in Overland Park., Kan.

Average of appraisals

Lazard Ltd., which was hired by Sprint Nextel, put the value of the affiliate at $8.8 billion, or $27.25 per share. Morgan Stanley determined the fair market value to be $9.6 billion, or $29.75 per share. The final value was set at the average of the two appraisers' findings, Sprint Nextel said.

Analyst Todd Rethemeier of SurTerre Research/Soleil Securities said he thought the price was "a ridiculously high valuation" at 13 times earnings before interest, taxes, depreciation and amortization.

"Not to take anything away from Nextel Partners, they are a very well-run company with good assets," Rethemeier said. "But at the end of the day, it seems way out of line with where the rest of the industry is trading and historical prices."

Rethemeier noted that Sprint Nextel had little choice but to pay the price.

He said it makes sense for Sprint Nextel to buy the affiliates and focus on the merger of Sprint and Nextel.

, which was completed in August.

"In the big picture, the affiliates are small," he said. "Sprint Nextel is better off buying them than to risk getting distracted" from the merger.

Chris Mercer, chief executive officer of the independent business appraisal firm Mercer Capital of Memphis, Tenn., said the arbitrators did "a great job" of determining the fair market value of Nextel Partners. Mercer said Sprint Nextel had left Nextel Partners with little choice but to fight for its market.

"Nextel Partners went to court out of self-defense, and let the court of public opinion rule a little bit," he said.

The deal must be approved by the Federal Communications Commission and the Department of Justice. It is expected to be completed by the end of the second quarter of 2006.

"Sprint Nextel shares with Nextel Partners a commitment of excellence to our customers, employees and shareholders," Gary Forsee, Sprint's chief executive officer, said in a news release. "As we work through the regulatory approval processes, we intend to focus on plans for efficiently integrating Partners' business into our operations in a way that is seamless for customers and employees."

Nextel Partners, with 1.8 million customers in 31 states, will be the sixth affiliate bought by Sprint since the lawsuit was filed.

"From inception we have placed the interests of our investors, customers and fellow partners (employees) first and foremost," John Chapple, Nextel Partners chairman, CEO and president, said in a news release. "We believe that aligned with Sprint Nextel we are poised to move to the next level. This is an across the board success. It results in an attractive price and provides certainty for all Nextel Partners shareholders."

Shares of Sprint Nextel closed down 17 cents at $24.47 in trading on the New York Stock Exchange, where they have traded in a 52-week range of $21.57 to $27.20. Shares of Nextel Partners closed up $1.52 at $27.84 in trading on the Nasdaq Stock Market, exceeding the 52-week range of $18.65 to $27.40.