Sprint Buyout Of Affiliates Unlikely Despite Suit

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Sprint Buyout Of Affiliates Unlikely Despite Suit

NEW YORK -(Dow Jones)- A third lawsuit from a Sprint Corp. (FON) affiliate is not expected to spur the wireless carrier to make further purchases in the wake of the US Unwired Inc. (UNWR) acquisition.

On Friday, IPCS Inc. (IPCX) filed a lawsuit against Sprint, the second in three days. The suit claimed the Overland Park, Kan., company's merger with Nextel Communications Inc. (NXTL) would breach an agreement giving IPCS exclusive control of markets in Illinois, Michigan, Iowa and eastern Nebraska.

UbiquiTel Inc. (UPCS), which serves the western and midwestern U.S., filed a suit Wednesday similar to IPCS, claiming a violation of exclusivity agreements.

Sprint spokesman Scott Stoffel declined to comment on the lawsuits.

The complaints follow Monday's announcement that Sprint would acquire US Unwired for $1.3 billion, putting to bed its own disagreement. The Lake Charles, La., company, which filed its lawsuit in 2003, was seen as the most contentious of the affiliates. As such, it made sense for Sprint to acquire the company for $1.3 billion. While the other affiliates trade at a premium on expectations they may get bought out as well, some say that's unlikely.

"It would be surprising if (Sprint) went and acquired them all ahead of the merger," said Bill Densmore, a wireless analyst for Fitch Ratings.

Sprint may view the other two lawsuits as less likely to derail the merger agreement, and UbiquiTel has even said it didn't intend to "enjoin" the deal.

"I don't know if they are of a similar nature where they could affect closing the transaction," Densmore said.

In addition to a possible buyout, the affiliates could just be pressuring Sprint to secure exclusivity following the merger. Merrill Lynch & Co. analyst David Janazzo speculated that one compromise could include the affiliates acquiring the Nextel and Nextel Partners Inc. (NXTP) in-market assets, which would boost the size of the affiliates and possibly pave the road for consolidation. Another resolution would be for Sprint to buy a partial stake in the affiliates.

While a long-term strategy of buying out the affiliates is likely, having Sprint acquire them all ahead of the merger would be a less attractive option. Densmore estimated a deal of that size would cost $5 billion to $6 billion, plus another $2 billion in debt.

Still, that is a possibility, Janazzo said in a note. He believes Sprint could acquire the affiliates and retain its investment-grade rating.

But Sprint isn't the only one feeling the heat. Nextel's affiliate, Nextel Partners, is likely exercise its option to force Nextel to buy the company out at a premium. The two sides are squabbling over the exact premium for the potential deal, but it could cost more than $4.5 billion.

(Janazzo doesn't own a stake in any of the companies he covers. Merrill has an investment-banking relationship with Sprint. Densmore doesn't have any conflicts of interest to report.)

Sprint's stock closed Friday at $25.47, down 6 cents, or 0.2%, on volume of 7.5 million shares. Average daily volume is 10.3 million shares.

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com


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