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Sprint, Nextel announce $35 billion merger

DATE OF EVENT: Wednesday, Dec. 15, 2004

DATE PUBLISHED: Thursday, Dec. 16, 2004, in The Kansas City Star

Editor’s note: The 2004 Sprint/Nextel merger proposal would create a company that could compete with other national leaders, Cingular Wireless and Verizon Wireless. It also would move the telecommunication company’s corporate headquarters away from Kansas City and possibly lead to another round of layoffs. The merger would be approved by the Federal Communications Commission in August 2005.

HERE’S THE DEAL

Companies announce $35 billion merger

By David Hayes, Suzanne King and Scott Canon

NEW YORK — Kansas City is losing a corporate headquarters, but its largest employer is picking up 15 million customers.

Sprint Corp. and Nextel Communications made it official Wednesday, announcing a blockbuster merger that will alter Kansas City’s corporate hierarchy and significantly bulk up the nation’s third-largest wireless company.

The $35 billion transaction calls for the new company, Sprint Nextel, to have its headquarters in Nextel’s hometown, Reston, Va. The company’s operational headquarters will be in Overland Park.

As part of the proposed merger, Sprint’s local telephone business would be spun off to shareholders, creating a new telecommunications company based in the Kansas City area.

If it gets shareholder and regulatory approval, the merger would save $12 billion over three years — in part from layoffs throughout Sprint and Nextel.

Some analysts estimate those job cuts could number in the thousands. But Sprint Nextel executives, while acknowledging some cuts are coming, shied away from details.

“Make no mistake about that,” said Gary Forsee, Sprint’s chairman and CEO told Wall Street analysts. “We’re very clear that at the end of the day this will be about rationalizing and downsizing and having a cost competitive structure going forward.”

Forsee said it would be “premature” to say how many of those employees would come from the company’s Kansas City area work force, which numbers 17,000. …

The merger still must be approved by shareholders, the U.S. Department of Justice, the Federal Communications Commission and state regulators. Officials said they hope to close the merger during the second half of 2005.

Following the approval in October of Cingular Wireless’ $41 billion acquisition of AT&T Wireless, which created an even larger wireless colossus, the Sprint Nextel deal is not expected to meet tough resistance.

Consumer groups have warned that further consolidation of the wireless industry ultimately will lead to poorer customer service and higher prices over the long haul.

The chairman of the FCC said Wednesday that regulators will take a close look at the merger.

“Whenever we sort of consolidate the market one fewer, we’re going to take a very, very hard and rigorous look at that,” said FCC Chairman Michael Powell. …

Sprint’s board didn’t approve the deal until late Tuesday.

The merger puts two growing companies together to make a strong competitor to market leaders Cingular Wireless and Verizon Wireless, Forsee and Donahue said.

“This is about one plus one equaling a lot more than two,” Forsee said.

Questions remain about the future of Sprint’s operations in the Kansas City area and Nextel’s operations in the Reston and Washington, D.C., area. But throughout the day Wednesday, executives tried to assure both communities that their presences would not be diminished either place.

“It doesn’t make sense to move thousands of employees from Reston to Kansas City or Kansas City to Reston,” Forsee said. …

Nextel has about 4,000 employees in Reston. Sprint, which owns three buildings in Reston, already has 1,600 employees based there. …

Yet the deal also would mark the end of an era for Sprint. The company’s traditional wireline local telephone services, the original business started in 1899 as the Brown Telephone Co., would be spun off to stockholders.

The new local telephone company will be based in Kansas City and be the nation’s largest independent local phone company. The company would have about $6 billion in annual sales.

The merger and pending headquarters move to Reston leaves Kansas City without a Fortune 100 company…

Under terms of the agreement, Nextel shareholders will receive about 1.3 shares of Sprint Nextel stock for each share of Nextel. Shareholders also will receive a small amount of cash. …

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