Sprint Plans Big Write-Off Of Assets

By Alejandro Lazo
Washington Post Staff Writer
Friday, February 1, 2008

Sprint Nextel said yesterday that it may write off as much as $31 billion related to its 2005 merger with Nextel Communications.

If taken in full, the write-off would eradicate all of the "goodwill," or the premium Sprint paid for assets related to the deal.

Sprint said in a filing that the write-off would have no effect on its cash balance or future cash flows or result in it violating agreements with lenders. Sprint said it would announce the amount of the write-off when it releases its financial results Feb. 28.

"We are sound financially," said James Fisher, a Sprint spokesman. "We have strong cash flows from our operations, good cash liquidity on the balance sheet and about 54 million customers."

The Reston company has been struggling for more than a year, bleeding customers from its main wireless service to rivals AT&T and Verizon Wireless. Sprint lost about 1 million subscribers last year. Many of the losses involved users of the company's push-to-talk services, which were pioneered by Nextel.

In December, the company installed a new chief executive, Daniel R. Hesse, who announced last month that the company was cutting 4,000 jobs and closing 125 retail stores. Last week, the company announced the departures of three top executives, including finance chief Paul Saleh.

Thomas Watts, an analyst who follows Sprint for the New York investment bank Cowen and Co., said the announced write-off was characteristic of a regime change.

"Frankly, it is a fairly classic move by a new CEO," Watts said. "I come in, and I take a lot of charges. I write things off, and I blame it on the previous management."

A $31 billion write-off would likely result in a big fourth-quarter loss. In the corresponding quarter of 2006, the company reported a profit of $261 million.

Investors were unfazed by the news. Shares of Sprint closed up 17 cents, or 1.6 percent, at $10.53. Most telecommunications stocks rose yesterday on optimism that Sprint and Clearwire may revive a deal to build a wireless broadband network known as WiMax. That technology could breathe life into the company, which has suffered a series of blows since the Nextel deal.

The $35 billion combination created the third-largest wireless company in the country, but ever since, Sprint Nextel has struggled to integrate the two firms' technology and work cultures.

"Most people agree that the Nextel acquisition has been a disaster for Sprint, and I think that taking the charge just reinforces that perception," Watts said. "They had a much harder time integrating the Nextel network than they anticipated."

Sprint has its headquarters in Reston, where Nextel was based, but maintains the bulk of its operations in Overland Park, Kan. Two corporate cultures have resulted. Clashes as varied as advertising strategy and cellphone technologies have prevented the merger from succeeding, analysts said.

The failure has led to deteriorating service and an exodus of customers.

"They are at a big competitive disadvantage," said Bruce Greenwald, a professor of finance and economics at Columbia University. "They don't have a dominant share in any market that they compete in."

Staff writer Cecilia Kang contributed to this report.

© 2008 The Washington Post Company