By Zachary A. Goldfarb
Washington Post Staff Writer
Wednesday, February 13, 2008
Sprint Nextel yesterday appointed an activist investor to its board who has been pushing for changes at the troubled wireless firm, avoiding a possible confrontation with shareholders over its future.
The investor, hedge fund manager Ralph Whitworth, 52, had criticized plans by Sprint to build a $5 billion high-speed WiMax wireless network and faulted the Reston firm for failing to stop the decline of its core wireless business.
Whitworth has played the activist role on the boards of a number of struggling companies, including Waste Management and Mattel. He is viewed favorably by many corporate governance advocates and is known for pushing companies to sell assets to boost shareholder value.
Sprint's stock is down 57 percent in the past year. Yesterday it was up 26 cents, or 2.67 percent, to $9.99.
"A turnaround at Sprint Nextel won't be easy, but I believe the ingredients are in place to get the job done for the company's shareholders," Whitworth said in a statement. He also praised new Sprint chief executive Dan Hesse, saying he "has committed to review all aspects of the company's business and shown a willingness to make tough decisions."
Another important decision could come soon as Sprint weighs whether to relocate its headquarters from Reston to Overland Park, Kan., where Hesse and most employees work. An executive headquarters in Reston and an operational headquarters in Overland Park has only amplified cultural divisions at the firm, the product of a $70 billion merger between Sprint and Nextel.
Hesse told USA Today this week: "There will be one headquarters," though he didn't say where it would be, and the company declined to elaborate yesterday.
Sprint has about 4,500 employees in Reston. Gov. Timothy M. Kaine (D) is pushing to keep as many of them here as possible. "The governor is clearly aware of the situation, and we're in conversations with the company," said Christie Miller, spokeswoman for the Virginia Economic Development Partnership.
Since taking over in December, Hesse has cut about 4,000 positions, let go three top executives and shuttered 125 retail shops. He is working to shore up Sprint, whose profit and sales slid last year as it lost more than a million subscribers.
Hesse also has renewed discussions with outside firms -- including start-up Clearwire, Intel, Google and others -- to invest in its WiMax network, perhaps as a spinoff.
Whitworth's addition to the board may add fuel to those talks. Whitworth said last year that he had "lost confidence" in Gary Forsee, the architect of the WiMax plan who has been removed as chief executive since Whitworth made his remarks.
"The fact that Whitworth is on the board is even more reason to expect the spinoff of the WiMax division because Sprint investors don't want WiMax on the balance sheet," said Patrick Comack, an analyst at Zachary Investment Research. "It looks like Hesse wants WiMax but obviously can't afford it and is going to need a major financing."
Whitworth, whose firm owns about 2 percent of Sprint, is the 13th member on the Sprint board, joining such prominent executives as chairman James Hance, formerly vice chairman of Bank of America; Rodney O'Neal, chief executive of Delphi; and William H. Swanson, chief executive of Raytheon.
Whitworth has pioneered his own version of shareholder activism over the past 20 years. With partner David H. Batchelder, Whitworth formed San Diego hedge fund Relational Investors in 1996 -- now handling $7 billion in assets. The firm popularized a type of money management in which investors find a company in need of reform, buy substantial amounts of its shares and then, if necessary, seek to join the corporate management to force change. Whitworth and associates have several times sought to sack leadership teams.
"This is a roll up your sleeves, get heavily involved sort of investment," said Patrick McGurn, executive vice president at Institutional Shareholder Services, a corporate governance organization, and Whitworth's former law school roommate.
Whitworth was born in Nevada and graduated from Georgetown Law School. He cut his teeth as a congressional aide and an energy executive and has a reputation as a slow-talking Westerner who is quick with numbers and can speak to different audiences.
"I don't know anybody who is better at the art of patient compromise than Ralph is. He is utterly disarming personally because he is always extremely well informed," said Nell Minow, editor of the Corporate Library, who has worked with Whitworth many times. "It's so unusual to find someone who is an activist investor who speaks the language of Wall Street."