Sprint Ends Court Fight by Agreeing to Purchase iPCS
Sprint said it agreed to buy affiliate iPCS for $831 million, ending a legal battle between the companies going back to Sprint’s purchase of Nextel. Sprint expects a relatively smooth and quick regulatory review of the deal, a spokesman said.
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The acquisition, expected to close late this year or early next will produce $30 million in annual financial benefit and will improve Sprint’s free cash flow, the spokesman said. Sprint will no longer be required to divest its iDEN network in some iPCS territories, as a judge had ordered. The deal needs the approval of iPCS shareholders and customary regulatory approvals. IPCS’s 710,000 subscribers will be moved from the “Wholesale and Affiliates” column to “Sprint Direct” postpaid, he said. IPCS’s CDMA wireless business will fill in a piece of Sprint’s national network, the spokesman said.
Sprint has on hand the cash to make the purchase, but it will mildly dilute the company’s credit ratios, said Piper Jaffray analyst Chris Larsen. The carrier will assume $405 million in net debt and acquire all of iPCS’s outstanding common shares for $24 per share, 34 percent more than the closing price Friday.
The deal simplifies matters for Sprint but won’t help the company stop losing customers, said Bernstein Research’s Craig Moffett. Long term, Sprint may need to merge with another company, said Auriga analyst Chandan Sarkar. The iPCS deal will make any such merger easier by getting rid of the court fight, he said. Deutsche Telekom remains a possible buyer, Moffett said. The deal will let Sprint focus more on what it’s doing with its network, including its 51 percent stake in a joint venture with WiMAX provider Clearwire, said Gabelli & Co. analyst Sergey Dluzhevskiy. In May, Sprint lost on a request to dismiss an iPCS lawsuit that sought to stop its network buildout with Clearwire. IPCS also sued Sprint last month over its planned purchase of Virgin Mobile USA, alleging breach of contract as it had in the older case. Sprint has two remaining affiliates, privately held Swiftel and Shentel.
Stifel Nicolaus noted that iPCS holds a Section 214 license to offer international service, and a domestic wireless license. Although minimal, this triggers FCC jurisdiction, the investment research firm said. A Hart-Scott-Rodino antitrust filing with the Department of Justice and the Federal Trade Commission might also required, it said. The Sprint-Virgin Mobile deal is a good benchmark for how the iPCS deal is likely to be processed, it said. In the earlier case, the FTC approved the deal in a month and the FCC processed the international 214 license transfer under a 45-day streamlined approval system, Stifel said. There is an analogous, though not identical, process for wireless licenses, which theoretically leads to approvals within 21 days, but can take longer, it said.