Sprint Nextel Corp. will buy another of its affiliates to end pending legal action.
Sprint, the nations third-largest mobile phone company, said on Wednesday it will pay $312.5 million for Northern PCS Services LLC. Sprint also will assume $5.3 million in debt. Northern PCS serves 236,000 customers in parts of Iowa, Minnesota, North Dakota and Wisconsin. The company is based in Waite Park, Minn., and has 240 employees and earned $130 million in revenue in 2006.
The deal is expected to close in the third quarter.
Upon the merger of Sprint and Nextel, a number of lawsuits cropped up as affiliates cried foul over competitive problems. So, Sprint took to buying the partner providers that put up a fuss because acquisitions ended the lawsuits. The last deal took place in April 2006. Sprint snapped up UbiquiTel Inc. for $1.3 billion in cash; that was Sprints seventh acquisition out of 10 affiliates.
Northern PCS did have legal action against Sprint, but the buyout makes it moot, said James Fisher, a spokesman for Sprint.
Sprint now is dealing with a legal issue with iPCS, its largest affiliate, Fisher said, although he didnt elaborate. However, iPCS, in its quarterly report filed on May 10 with the Securities and Exchange Commission (SEC), did expound. The provider lodged two lawsuits against Sprint in July 2005. The matters were settled in iPCS favor last year; Sprint is appealing one of the final orders.
If iPCS does not win in its litigation against Sprint, the company said in its SEC filing, Sprint may engage in conduct that has a material adverse effect on our business and operations.
iPCS is Sprints largest PCS Affiliate it reported nearly $500 million in sales last year alone. It has the exclusive right to sell Sprint products in 80 markets throughout the Midwest and in Tennessee. iPCS serves nearly 600,000 subscribers.
Sprints remaining affiliate agreements are with Shenandoah PCS and Swiftel, but we never discuss potential M&A activities, Fisher said. On March 15, Shenandoah said it had settled its claims against Sprint through 2010, which presumably would erase Sprints need for an immediate acquisition.
Sprints capability to handle more M&A is questionable.
It lost $211 million in the first quarter of 2007, as well as 220,000 subscribers. The provider also continues to be ranked as one of the companies with the worst customer service in the country. Gary Forsee, Sprints chairman and CEO, told investors in early May that the company is working to shore up its technological issues and improve its customer service. Such strategies stand to eat up millions of dollars, leaving onlookers to question whether the company could pay to acquire more affiliates. Some analysts have estimated that an iPCS acquisition could cost Sprint up to $1 billion, according to various media reports.
Sprint stocks rose early Wednesday afternoon, up 1.62 percent at $21.95. Northern PCS is privately held.