Sprint PCS affiliate iPCS Inc. said it plans to acquire fellow affiliate Horizon PCS Inc., creating the third-largest network affiliate.
The deal calls for Horizon shareholders to receive 0.7725 iPCS shares for each Horizon share owned, with iPCS stakeholders owning approximately 57.5 percent of the combined operations after the deal closes later this year. Both companies emerged from bankruptcy protection last year.
The new operations, which will be headquartered in Schaumburg, Ill., will cover more than 11.2 million potential customers and serve 432,000 subscribers. Horizon’s operations cover approximately 7.4 million pops in 11 contiguous states in the Midwest, while iPCS’ current operations cover approximately 7.8 million pops in Illinois, Michigan, Iowa and Nebraska.
“This merger will create the second-largest wireless affiliate of Sprint in terms of covered pops and third largest in terms of subscribers and will serve to improve the company’s profile with Sprint today and in the future,” said Timothy Yager, iPCS president and chief executive officer. “We believe that the combined company will have one of the strongest balance sheets among the Sprint affiliates and a substantial cash position.”
Following the close of the deal, Yager will continue in the same position with the new organization, while current Horizon lead director Robert Katz will become chairman of the board of directors. Horizon and iPCS will also have three members on the company’s board of directors.
Current Horizon President and CEO William McKell, who is not expected to be part of the new organization, noted the combined companies would have a market capitalization of approximately $500 million that would allow easier access to the capital markets.
The acquisition follows a similar deal by fellow affiliate Alamosa Holdings Inc., which acquired AirGate PCS Inc. earlier this year. The combined deals drop the number of Sprint affiliates down to 10, though analysts predict further consolidation among the network partners and an eventual rollup into Sprint following its pending merger with Nextel Communications Inc.
Just prior to the acquisition announcement, Horizon signed an amendment to its affiliate relationship with Sprint related to back-office billing and service charges, activation fees and wholesale/retail roaming rates.
The amendment, which is retroactive to Jan. 1, calls for Horizon’s current monthly service fee per subscriber to drop to $7 this year and to $6.75 in 2006, and a one-time activation fee of $22 per subscriber for 2005 and 2006 to cover certain acquisition costs.
Sprint will pay Horizon a reciprocal roaming rate of 5.8 cents per minute for voice subscribers through 2006, with the exception of certain markets where the rate will continue at 10 cents per minute through 2011 or upon reaching certain penetration levels. Beginning in 2007, the reciprocal roaming rates and fees for established cash cost per user and cost per gross addition services will change based on an agreed methodology.
In connection with the amendment, Horizon agreed to settlement terms with Sprint regarding several disputed charges for back-office services. The settlement calls for Horizon to pay a portion of the amount disputed, which is estimated at $700,000 and was fully reserved at Dec. 31, 2004.
The settlement also calls for Sprint to acquire Horizon’s network assets and rights to subscribers in Logan, W.V., and the Williamson-Pikeville market for $170,000. Those markets currently include approximately 200 subscribers and 40,000 pops.
“We are excited about the reduced roaming rate structure for Sprint services as well as the new fixed roaming rates, each of which offers significant benefits over the current structure while also simplifying our relationship and providing us with greater long-term predictability,” McKell said. “We are equally pleased that we are able to retain the economic benefit of our 10-cent roaming markets for the foreseeable future.”
Terms of the amendment, which are similar to terms reached between iPCS and Sprint early last year, will transfer to the new iPCS operations.
Sprint has announced a number of similar deals during the past year with its affiliates that followed several lawsuits alleging Sprint’s arbitrary changing of affiliate terms that many of the network partners said led to eventual financial reorganizations and bankruptcy filings.
