Nextel Communications Inc. questioned the value of its affiliate Nextel Partners Inc. in relation to a put option Nextel Partners can trigger following Nextel’s pending acquisition by Sprint Corp., which garnered shareholder approval yesterday.
In a Securities and Exchange Commission filing, Nextel stated that Nextel Partners’ put option, which would require Nextel to acquire the remaining 68 percent of its affiliate that it does not currently own for “fair market value” plus a put premium, should not be tied directly to Nextel Partners current market price, which has increased more than 40 percent since the deal was announced late last year.
Nextel cited Nextel Partners’ current trading value metrics as being “the highest in the industry by a significant margin” as a reason that the appraisal value “could be lower, and we think should be lower” than its current trading price of $24.50 per share. Nextel noted that its affiliate’s current enterprise value as a multiple of Wall Street 2005 estimates and enterprise value per subscriber is more than twice Nextel’s value despite Nextel generating more operating income before depreciation and amortization per subscriber than Nextel Partners.
Nextel also reported that if Nextel Partners triggers its put option following the closing of Sprint’s acquisition of Nextel, which Nextel Partners’ management has said it will recommend to its shareholders, the process could take at least four months to complete.
Nextel’s argument found little support among some analysts who continue to feel Nextel Partners’ put rights will garner a substantial premium.
“We expect the valuation battle to rage on for awhile, but believe [the] final price, including control premium, will be above current levels,” said Raymond James & Associates telecommunications industry analyst Ric Prentiss in a research note.
