Under terms of the deal, current Nextel shareholders will receive the equivalent of 1.3 shares in the merged firm. Though described by both companies as a merger of equals, Sprint shareholders would hold a slight majority of shares in the combined company. The deal was structured this way to avoid taxes on an expected spinoff of Sprint's local phone lines.
Shareholders at both companies as well as state and federal regulators must approve the merger. Government sources, who spoke on condition of anonymity because the deal is not yet before them, have said they do not expect the merger to run into trouble, largely because the combined company would be No. 3 in the industry.
The deal includes a clause that would require any party that breaks up the merger to pay a $1 billion fee. The clause is viewed on Wall Street as directed at Verizon, which reportedly has considered making its own bid for Sprint. Any potential suitor could challenge the breakup fee in court.
When Sprint and Nextel began talking early this year, the topic wasn't a merger, but a partnership to build a new, high-speed network together.
"And as we walked through the possibilities of that happening, it became pretty obvious to me that there might be a bigger step to take here," Donahue said in the interview.
He and Forsee had their first substantial conversation in April, Donahue said, and the deal was struck following a series of meetings throughout the summer and fall. At the news conference, Donahue said he and Forsee have become close friends as well as new colleagues. "He's fun, he's got a good sense of humor, and not only will I enjoy working with him in terms of making this company great," Donahue said, "I'll also enjoy playing golf with him, having dinner with him, because he's that kind of guy."
Some analysts said Nextel might have had a difficult time competing for new customers without a combination like this. The Reston company's network is fast becoming outdated because it is unable to handle advanced data services, such as video clips and Web pages. Building a new network could have cost Nextel more than $2 billion and likely would have taken two or three years. This deal would allow the two companies to share the high-speed network already being built by Sprint.
But Donahue said Nextel could have survived on its own. "This was not defensive, this was offensive," he said. "We looked at . . . the strength on the consumer side that Sprint had, the strength on the business side that Nextel had, and we said to ourselves, 'This is a great growth story.' "
Donahue says his role will include guiding the integration of the two firms and setting a vision for the new company. He said his three-year commitment to remain with Sprint Nextel includes two years as executive chairman, followed by a third year as non-executive chairman.
Nextel loyalists expressed concern that the company's spirit as an industry outsider could be diminished. "Nextel's rough-and-tumble roots as an entrepreneurial taxi radio-dispatch business may not jibe with Sprint's button-down persona," Timothy Horan, an analyst with CIBC World Markets Corp., wrote in a research note.