The deal, announced Wednesday, combines the No. 3 and No. 5 players in the market and will produce a company with about 40 million customers, including those through affiliates.
Sprint and Nextel shareholders will each own 50 percent of the combined company, dubbed Sprint Nextel. The terms of the deal call for each Nextel share to be exchanged for cash and stock in the new company, to a value of 1.3 shares of the new company.
The exact blend of cash and stock will be determined at a later date, but based on Wednesday's share prices, each Nextel shareholder would receive about 1.28 Sprint Nextel shares and about 50 cents in cash for each Nextel share.
Sprint shareholders will retain their existing stock. The total cash payment will not exceed $2.8 billion, according to the companies.
The merger between the two had been rumored for some time, as the cellular carriers sought a way to fight off rivals including No. 1 Cingular Wireless and No. 2 Verizon Wireless. Cingular recentlyof AT&T Wireless, making it the largest wireless carrier in the United States. Sprint Nextel will be the No. 3 player but will have a customer base much closer to those of Cingular and Verizon.
Sprint CEO and Chairman Gary Forsee will be CEO of the new company, while Nextel CEO Timothy Donahue will become chairman. The new company's board will have 12 directors, six from each company. The merger is expected to close in the second half of 2005, subject to regulatory approval.
Donahue jokingly referred to the merger as a surprise, based on the widespread speculation of the proposed deal. In a conference call with the press, the executive said he was "jazzed" about the opportunity to bring the two companies together and observed that the two companies' assets are aligned with the most promising growth areas of the telecommunications business, creating a template for his vision of the industry's future.
"This new, powerhouse company has the spectrum, infrastructure, distribution, and superb and differentiated product portfolio that will drive our continued success," Donahue said. "We're looking forward to competing with the Verizons and Cingulars of this world for the preeminent role in wireless and telecommunications."
Both Donahue and Forsee repeatedly referenced the combination of Sprint's strengths in consumer markets with Nextel's success among business customers as a primary catalyst in bringing the two companies together. Donahue also thanked Nextel's founder, Morgan O'Brien, and the work of its employees, for getting his company through some rough years.
"You all know that this company was written off some three to five years ago," he said. "No one really gave us a chance, and despite that, we have