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Sprint's Planned Nextel Deal Builds on Wireless Strength

By Ellen McCarthy and Ben White
Washington Post Staff Writers
Tuesday, December 14, 2004; Page E01

When Gary D. Forsee took over as chief executive of Sprint Corp. 20 months ago, the phone company was reeling from the telecom bust, burdened by debt and grappling with bigger competitors on three fronts: local, long-distance and wireless calling.

Forsee demanded change, cutting more than 11,000 workers, consolidating Sprint's disparate operations and betting the Kansas company's future increasingly on its wireless offerings, analysts say.

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Now, Forsee, 54, is making his boldest move, pushing a merger with Reston-based Nextel Communications Inc., while also preparing to jettison Sprint's poor-performing local telephone business to focus more intently on wireless and long-distance service. The combined company, to be named Sprint-Nextel, would still be only the country's third-largest, behind Verizon's and Cingular's wireless units, but it could be a more formidable competitor given Nextel's prized customer base. Its subscribers are a loyal group, spending more on average than any other wireless company's.

The boards of Sprint and Nextel are scheduled to vote on the merger today and it may be announced tomorrow, according to a source familiar with the negotiations who spoke on condition of anonymity because the deal is not final. The two companies reached a tentative agreement on the merger, worth about $35 billion, on Friday. Officials from both companies declined to comment on the talks, and sources close to the deal cautioned that last-minute glitches could still derail it.

Forsee is expected to become the combined company's chief executive. Nextel chief executive Timothy M. Donohue is said to have accepted an executive chairman's role.

Forsee is a former Sprint executive who jumped to BellSouth Corp. as a vice chairman in 1999, then was lured back to Sprint in March 2003. The Overland Park, Kan.-based company gave the new chief executive a four-year contract worth almost $25 million, including benefits and other compensation.

Forsee gained a reputation as an entrepreneurial manager who remembers names and makes hard decisions. He brought many of his allies onto the management team and pledged to turn the company around, but results were hardly immediate.

"The company was still reeling from its failed merger with WorldCom. It was also still reeling from the whole telecom bubble bursting," said Richard G. Klugman, an analyst with Jefferies & Co.

The proposed WorldCom-Sprint combination was former Sprint chief executive William T. Esrey's planned ticket to the big time of telecom, but that merger was scuttled by antitrust concerns. That ended up being good for Sprint, which escaped WorldCom's giant accounting fraud. Sprint's board forced Esrey and his chief operating officer, Ronald LeMay, to resign in early 2003 for using a questionable tax shelter for their personal finances.

Sprint was not able to escape the telecom bust. The company lost $1.4 billion in 2001. Its stock, which had reached $67 a share in June 2000, traded as low as $7.05 in July 2002. The firm was burdened with $21 billion in debt, forcing Sprint to sell assets including its Yellow Pages directory and to lay off thousands of workers.

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