Sprint Corp. announced its deal to gain ownership and management control of Sprint PCS, its wireless venture with Tele-Communications Inc., Comcast Corp. and Cox Communications Inc.
The Kansas City, Mo.-based long-distance carrier will issue shares of a new common stock that tracks Sprint’s wireless operations to the cable partners in exchange for their interests, and will issue shares to the public in an initial public offering later this year.
The cable partners initially will receive a 47-percent interest in the new stock in exchange for their interests in Sprint PCS and PhillieCo. Sprint’s initial share will be 53 percent. The cable partners will not have special governance rights in Sprint PCS or Sprint Corp. and will be issued low vote shares (1/10 vote). TCI currently owns a 30-percent interest in Sprint PCS, while Cox and Comcast own 15 percent each. Sprint, TCI and Cox own PhillieCo. Sprint will combine its wholly owned basic trading area properties along with PhillieCo assets under the Sprint PCS name.
The new structure will allow Sprint PCS to become more focused in accelerating subscriber growth by expanding distribution through its own channels and lower-cost channels, say analysts. The cable partners had become reluctant to fork over more money to the venture. All three have reported huge losses associated with the rollout of Sprint PCS service, and their original plans to compete with existing local telephone companies by using cable TV lines and new wireless communications technology have fallen by the wayside.
“With 1.2 million customers, a large national footprint and a superior CDMA technology, we believe that Sprint PCS is the pre-eminent wireless opportunity. However, since we were unable to realize our initial concept of cable-based PCS on a national scale, this business no longer fits our principle strategy of providing telecommunications services via our broadband plant,” said Jim Robbins, president and chief executive officer of Cox.
The contemplated IPO would be targeted to raise between $500 million and $1 billion for Sprint PCS. The ownership split established after the initial allocation of shares would be proportionately reduced by the amount of ownership interests issued in connection with the IPO. What percent of the company Sprint will have to sell to raise the target amount is unknown.
John Bensche, wireless analyst with Lehman Brothers Inc. in New York, said the IPO should be well received.
“There’s certainly not very many large-cap ways to play in the wireless business besides AirTouch (Communications Inc.) and Nextel (Communications Inc.),” he said. “Most of the PCS companies are hampered by a low float of their securities. From a technical perspective, it will be well received. I would think that Sprint could argue for a premium because of its scale and scope and strong brand name.”
Following the restructuring and the IPO, Sprint said it will recapitalize itself with two new common stocks. Sprint FON stock will track the performance of Sprint’s local and long-distance businesses, its directories and distribution businesses and Global One, a joint telecommunications venture launched two years ago by Sprint, Deutsche Telekom and France Telecom. Sprint PCS stock will track Sprint’s wireless holdings.
Sprint expects each share of existing Sprint common stock to be converted into one share of Sprint FON stock and a fractional share of Sprint PCS stock in a tax-free transaction. Sprint shareholders will then own shares of both the Sprint FON stock and Sprint PCS stock.
France Telecom and Deutsche Telekom will maintain their joint 20-percent interest in Sprint. The two will purchase enough Series 3 PCS shares to maintain their overall voting interest, consisting of a 20-percent voting interest in shares of both Sprint FON stock and Sprint PCS stock. Sprint will divide Sprint PCS stock into three categories to reflect different voting rights>
