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Sprint and Nextel’s “Merger of Equals”: What the 2004 Deal Meant

Sprint and Nextel announced a merger of equals in 2004, with near-even expected ownership, stock-and-cash terms for Nextel shareholders, and a planned Sprint local-business spin-off. The merger closed in August 2005.
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Sprint and Nextel announced a merger agreement on December 15, 2004, describing it as a “merger of equals.” Under the proposed terms, shareholders of each company were expected to own approximately half of the combined Sprint Nextel, while each Nextel share would receive value equivalent to 1.3 shares of the new company, including a small cash component. The merger closed on August 12, 2005.

What did Sprint and Nextel agree to?

The companies’ boards unanimously approved a definitive agreement. Sprint and Nextel said they were being valued equally and that shareholders on each side would own approximately 50 percent of the combined company. That was the companies’ characterization of the transaction, not a neutral finding about how ownership was divided.

Contemporaneous reporting by The Washington Post noted that Sprint shareholders would hold a slight majority of shares. The “merger of equals” label should therefore be understood as the parties’ description of the deal’s valuation and intended near-even ownership, alongside the reported share-distribution nuance.

How were shareholders to be paid?

The December 2004 announcement said each Nextel common share would receive value equivalent to 1.3 shares of Sprint Nextel, plus a small amount of cash, with the final allocation subject to adjustment. The detailed March 2005 joint proxy/prospectus set out the mechanics as a 1.28-share exchange ratio plus a 0.02 cash ratio, subject to adjustments and limits. These were transaction terms, not a statement of the shares’ present value.

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An SEC-filed transaction summary described the transaction as a $71 billion stock-for-stock merger. That is the historical deal value reported in the filing, not a current valuation or a measure of what shareholders ultimately gained.

Why did the companies say they were combining?

Sprint and Nextel said the combination would bring together national wireless networks and Nextel’s push-to-talk services with Sprint’s global IP network. They anticipated offering integrated and broadband wireless services. Those were the companies’ stated strategic expectations at announcement, not proof of the merger’s eventual performance.

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The joint announcement also cited approximately $40 billion in pro forma revenue for the four quarters ended September 30, 2004. Approximately $6 billion of that amount came from Sprint’s local telecommunications business. These figures described the proposed combined business using that historical period; they do not establish realized results after closing.

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What was planned for Sprint’s local telecommunications business?

Sprint intended to spin off its local telecommunications business after the merger. The exchange allocation could be adjusted to facilitate that planned separation. The local business was therefore part of the transaction’s financial and organizational planning, even though the companies expected it to be spun off after closing.

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When was the merger approved and completed?

  1. December 15, 2004: Sprint and Nextel announced the board-approved merger agreement.
  2. March 2005: The joint proxy/prospectus detailed the stock-and-cash exchange mechanics.
  3. August 3, 2005: Sprint and Nextel announced Federal Communications Commission approval and said all required regulatory approvals had been received. The announcement was documented in a later SEC filing: SEC filing on FCC approval.
  4. August 12, 2005: The FCC’s record lists the merger as completed: FCC completion record.

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