SAN FRANCISCO-Sprint Corp. Chief Operating Officer Len Lauer said the company plans to hold some cash in reserve following its pending acquisition of Nextel Communications Inc. to help fund additional requirements related to the deal or buy back stock. Lauer, speaking at Reuters Technology Summit, also said the company would likely continue to operate Nextel’s Boost Mobile L.L.C. and Virgin Mobile USA L.L.C. youth-oriented prepaid services once the deal closes later this year.
Lauer explained that Sprint’s cash position following the $35 billion acquisition could be used to re-acquire shares in the newly formed Sprint Nextel operation as opposed to paying down the combined operations more than $20 billion in debt.
“I think the bigger issue will be share buybacks,” Lauer said at the conference.
Analysts also noted that Sprint could use the cash reserve to acquire affiliates that could be impacted by the deal.
Nextel affiliate Nextel Partners Inc. has a “put” option that would require Sprint Nextel to acquire the affiliate for fair market value plus a control premium. Nextel Partners is currently valued at more than $5 billion.
Analysts have also noted that Sprint’s affiliates could be acquired following the acquisition of Nextel as many of the affiliates have clauses that prohibit Sprint from operating in their markets. Sprint currently has 11 public and private wireless affiliates following the recent acquisition of AirGate PCS Inc. by fellow affiliate Alamosa Holdings Inc. last month.
Lauer also noted that Sprint plans to continue to operate its pair of prepaid offerings following the merger, noting that Sprint’s current venture with Virgin Mobile Group plc would likely target a broader audience, while Nextel subsidiary Boost would target a more specific hip-hop youth market. Virgin Mobile currently serves more than 3 million prepaid subscribers, while Boost serves more than 1.2 million subscribers in far fewer markets.
“On an acquisition basis in any quarter they’re getting over half of new decisions in prepaid,” Lauer said. “Why not keep both of them?”
Lauer also downplayed any conflict arising from Virgin Group chairman and founder Richard Branson’s plans for a Virgin Mobile USA initial public offering later this year, which published reports indicated could generate around $2 billion. Analysts have noted that Sprint might be more interested in divesting its 50-percent stake in Virgin Mobile USA and instead focus on the complete ownership it will acquire in Boost.
“Whether they go public or not (there is) plenty of room for both,” Lauer said.
Virgin Mobile expanded its service offering into Canada using Bell Mobility’s CDMA network. The service is similar to Virgin Mobile USA’s prepaid offering in the United States, except for pricing that charges users 25 cents per minute for the first five minutes of calls per day and then 15 cents per minute. Virgin Mobile USA charges customers 25 cents per minute for the first 10 minutes of calls per day and then 10 cents per minute.
