Sprint To Buy Critic of Nextel Acquisition for $1.3 Billion

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Sprint, the no. 3 American mobile phone carrier, agreed to buy US Unwired for $1.3 billion to silence a critic that had sued to block Sprint’s planned purchase of Nextel Communications.


US Unwired holders will receive $6.25 a share in cash, Sprint said yesterday in a statement. US Unwired, a seller of Sprint services to 500,000 customers in nine states, in June told a federal court 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’s CEO, Gary Forsee, focus on objections from Nextel affiliate Nextel Partners. US Unwired shares surged 42% since the Nextel deal was announced in anticipation that Sprint might 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. “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% more than US Unwired’s July 8 closing price. Shares of Lake Charles, La.-based US Unwired rose 4 cents to $6.20 on the Nasdaq Stock Market. Sprint gained 7 cents to $25.45 on the New York Stock Exchange; its shares have risen 2.4% this year.


Shares of other affiliates of Sprint and Nextel, including Nextel Partners, rallied after the US Unwired deal was announced as some investors bet more acquisitions may ensue. By enlarging the territory served by Sprint and Nextel, the combination puts the new company into competition with smaller carriers that have noncompete 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 and Alamosa Holdings jumped to their highest levels in a year.


Even if they don’t manage to be acquired, Sprint affiliates could seek more favorable agreement terms, such as lower roaming fees or handset prices, said Yankee Group analyst Adam Zawel. They also could negotiate to pay a smaller portion of marketing expenses, he said.


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