The Sprint Nextel Corp. affiliate acquisition train continued to roll as the carrier picked up its largest cargo yet-CDMA affiliate Alamosa Holdings Inc. for $4.3 billion.
The purchase price includes Sprint Nextel assuming $900 million of Alamosa debt.
Under terms of the deal, Sprint Nextel will purchase Alamosa’s common stock at $18.75 per share in an all-cash transaction. The price was a 14-percent premium above Alamosa’s opening stock price of $16.17 per share the day the deal was announced. Alamosa’s stock surged on the news to $18.39 per share before trading was halted.
Alamosa will give Sprint Nextel approximately 1.5 million direct wireless subscribers in 242 service areas in 19 states.
Sprint Nextel noted the purchase price represents a 9.8 times projected 2006 adjusted operating income before depreciation and amortization. The deal is expected to close early next year.
“This acquisition closes a long partnership with the management and shareholders of Alamosa,” said Gary Forsee, president and chief executive officer of Sprint Nextel. “As the largest PCS affiliate, we appreciate their efforts over the years to grow Sprint’s business and we look forward to continuing a strong relationship with their customers. This transaction will significantly expand our direct customer base and territory, and will provide additional value for our shareholders.”
The agreement closes a contentious issue between Sprint Nextel and Alamosa. Alamosa initiated legal proceedings against Sprint Nextel following Sprint Corp.’s acquisition of Nextel Communications Inc. on Aug. 12. Alamosa claimed the acquisition violated terms of its affiliate agreement.
Alamosa bolstered its network holdings earlier this year when it acquired fellow affiliate AirGate PCS Inc. for $630 million. In addition to acquiring AirGate’s operations, Alamosa also picked up AirGate’s more comprehensive affiliate agreement, which prevented Sprint from offering wireless service using any licensed spectrum in AirGate’s service areas. Alamosa’s agreement only prevented Sprint from offering service using the 1.9 GHz spectrum band. Analysts noted this was significant because Nextel’s iDEN network uses spectrum in the 800 MHz bands, and the AirGate exclusivity provision prevented Sprint Nextel from marketing Sprint-branded iDEN services in Alamosa’s markets.
“We are pleased to accept Sprint’s offer to acquire our company,” said Alamosa Chairman and CEO David Sharbutt. “We have enjoyed a successful business relationship with Sprint that has benefited both companies. Our shareholders and employees can be proud of our results and the value that we have created in Alamosa.”
Sprint Nextel has already acquired a handful of its CDMA affiliates, including US Unwired Inc. for $1.3 billion, IWO Holdings Inc. for $427 million and Gulf Coast Wireless L.P. for $287.5 million. According to the RCR Wireless News Database, only a handful of CDMA affiliates remain independent, including UbiquiTel Inc.; iPCS Inc. and its subsidiaries Horizon Personal Communications Inc. and Bright Personal Communications Services L.L.C.; Swiftel/Brookings; Northern PCS; Shenandoah Telecommunications Co.; and Enterprise Communications.
The Alamosa deal revved up UbiquiTel’s investors as the carrier’s stock price surged more than 10 percent on Nov. 21 to a new 52-week high of $9.77 per share, and jumped even higher the following day to $9.82 per share, before eventually falling back to around $9.70 per share. IPCS saw a similar jump, with its stock price climbing from $39 per share to as much $43.25 per share, before dropping to around $42 per share.
SG Cowen & Co. telecom analyst Thomas Watts noted that using the 9.8 times multiple Sprint Nextel paid for Alamosa would imply an UbiquiTel acquisition price of $10.90 per share. UbiquiTel and iPCS both have December court dates regarding their claims against Sprint Nextel, which could indicate an out-of-court settlement is close at hand.
While Sprint Nextel’s plans to acquire its CDMA affiliates appears on track, the carrier continues to run into trouble with its planned acquisition of iDEN affiliate Nextel Partners Inc.
Nextel Partners scored a significant victory on Nov. 18 when a judge ruled the carrier could disclose the results of the first two appraisers in its ongoing battle with Sprint Nextel to determine a “fair market value” price for Sprint Nextel’s forced purchase of the 68 percent of Nextel Partners it does not already own.
Nextel Partners said its original affiliate agreement required the carrier to disclose the appraisal results once they were done. The appraisals, which are being conducted by Nextel Partners’ choice of Morgan Stanley & Co. and Sprint Nextel’s choice of Lazard Ltd., are set to be completed by Dec. 28. If the two appraisals are more than 10 percent apart, a third appraiser will be tapped to provide a final valuation.
Sprint Nextel had claimed that the findings of the third appraiser would be tainted by the release of the first two appraisals. Nextel Partners countered that all three appraisals should be conducted at the same time in order to avoid any contamination.
Nextel Partners also noted that the Delaware court agreed with the affiliate’s interpretation of how the fair market value should be determined. Nextel Partners has said that its affiliate agreement calls for a fair market valuation to discount any negative impact the carrier’s use of iDEN technology or non-congruent spectrum would have on determining the company’s value.
Sprint Nextel had claimed that Nextel Partners’ technology and spectrum position make it attractive only to Sprint Nextel as an acquisition target.
“In sum, Partners advocates an approach to fair market value that would require the appraisers to value a fantasy company, using fantasy prices, in a fantasy technological and competitive environment, under a definition of fair market value that exists only in Partners’ fantasies,” Sprint Nextel noted in its pre-trial filing.
Nextel Partners has said the final valuation should be determined by early February. Nextel Partners’ stock is trading at around $26 per share with a market capitalization of more than $7 billion.
