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Nextel, Sprint Close to Merger

Cell-Phone Firms Have Tentative Deal

By Ben White and Ellen McCarthy
Washington Post Staff Writers
Saturday, December 11, 2004; Page A01

Nextel Communications Inc. and Sprint Corp. reached a tentative agreement to merge, a deal that would create the nation's third-biggest mobile-phone company and could bring significant changes to Nextel's Reston headquarters.

Sources familiar with the deal said it would create a company called Sprint-Nextel with 39 million subscribers. It was unclear yesterday what a combination would mean for consumers, although analysts said some customers might eventually need to get new phones as the companies combined their technologies.

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The merger would be the biggest telecom deal in the Washington area since MCI Communications Corp.'s ill-advised merger with WorldCom Inc. in 1998. Describing a mood of apprehension among Nextel employees yesterday, a source close to the company said the news is "sending shivers up and down the spine of the corporation." About 2,500 of Nextel's 18,000 employees work in the Washington area.

Sources familiar with the merger talks, who spoke on condition of anonymity because the deal is not final, cautioned that it could still fall apart. But if talks continue to go well, an agreement could be announced by early next week.

Sprint's chief executive, Gary D. Forsee, would probably take over the key position of chief executive of the combined company, the sources said. Nextel's chief executive, Timothy M. Donahue, would become executive chairman.

The new company's operating headquarters would be in Overland Park, Kan., where Sprint is located, with a corporate headquarters maintained in Reston. The company's board of directors would be split evenly between representatives from both firms. Although the deal is being termed a merger of equals, Sprint shareholders would hold a slight majority of the merged company's stock.

Neither company would comment yesterday, but Nextel loyalists were eager to rebut the notion that the combined company would be dominated by the larger, but less profitable, Sprint, which has 60,000 employees and 23.2 million wireless subscribers.

"What we've built up will prevail, even in the context of a merger," said the source close to the company. "Nextel will have huge influence. There is very little doubt we'll come out stronger."

Under the terms of the proposed deal, which has a tentative value of about $36 billion, Nextel shareholders would receive the equivalent of 1.3 shares of Sprint stock plus a small amount of cash for every Nextel share.

Many industry experts say the deal is a good one, at least on paper, because Sprint and Nextel would benefit from the increased purchasing power of a larger company and would add to each other's strengths.

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