US mobile phone operators Sprint and Nextel have announced their multi million dollar merger after recent industry speculation.
The move creates third super operator in the US, with around 39 million subscribers, just behind current market leaders Cingular Wireless and Verizon Wireless who have around 42 million subscribers. T-Mobile have been pushed into fourth place, lagging significantly behind with 16.3 million subscribers (see
Sprint And Nextel Deny Merger).
Rumours had circulated about a possible bid by Verizon Wireless for rival company Sprint earlier this month, with the move this morning making Verizon the largest mobile operator in the US, taking over from Cingular Wireless. The merger between Sprint and Nextel has been called “merger of equals” and is a positive move for both companies creating a new force in the market.
As a result of the consolidation, Sprint’s local division, which consists of a portfolio of small incumbent local operators, will be spun off as a separate company owned by the current shareholders. However, this will dramatically change Sprint and Nextel’s profit profile. The local division currently provides around 25% of Sprint’s revenues, 50% of its EBIT, and around 90% of its earnings per share. Sprint Nextel could possibly lose as much one billion dollars, or a third of the companies’ net incomes when it spins off this entity.
The consolidation is justified by the income that the companies will make working together during the first few years of their merger, with Sprint Nextel identifying that they are set to make $12 billion as a synergy.
Elsewhere, Merrill Lynch have predicted that the high profile merger will impact overall US ad expenditures. The newspaper market in particular is expected to be affected, since Sprint and Nextel are both heavy newspaper advertisers, with more than half of their media spend in the medium. Sprint was the fourth largest local and national newspaper advertiser in 2003 (see Vodaphone Says OK to Verizon Bid For Sprint)
The union of Sprint and Nextel could prove ominous for the newspaper industry, with the companies’ inevitable reduction in ad spending as a result of the merger.
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