Marrying into a family can always bring problems, but rarely do family feuds turn nasty as fast as the dust-up between Sprint Nextel Corp. and Nextel's most successful offspring.
It's been only two months since Sprint and Nextel completed their merger, and already the new Reston-based company is embroiled in two lawsuits with Nextel Partners Inc., a firm based in Kirkland, Wash., that provides Nextel phone service in dozens of smaller markets.
The lawsuits are preliminary skirmishes for a billion-dollar battle that begins today, when Nextel Partners stockholders are expected to vote to demand that Sprint Nextel buy the 69 percent of the company that it doesn't already own.
A corporate agreement that was written when Nextel created Nextel Partners in 1998 gives Partners the right to force a buyout under certain circumstances -- including the sale of Nextel.
Once Nextel Partners shareholders invoke the mandatory buyout requirement, the question becomes, "For how much?"
That's what Sprint Nextel and Nextel Partners are fighting about. Both have hired high-price New York lawyers and investment bankers as their gladiators.
Wall Street is betting that Sprint Nextel will have to pay top dollar for Partners. Its stock has gained more than 30 percent this year and closed at $25.51 a share on Friday. At that price, Sprint Nextel would have to spend close to $5 billion to acquire Partners.
Sprint Nextel hasn't made an offer but has said in court filings that stock prices are "not a driver of valuation."
Partners said such comments are part of an "inappropriate campaign to try to lower the trading price" of its stock so Sprint Nextel can buy the business on the cheap, perhaps for as little as half what the stock is selling for.
If Sprint's view of the valuation holds up, investors who hold Partners stock will take heavy losses, at least relative to today's prices. On the other hand, more Washington area investors own shares of Sprint Nextel, which could suffer if the company pays too much for Partners.
And taking over Partners would complicate the already difficult job of combining the operations of Sprint and Nextel, whose mobile phone networks use different technologies.
The fight is the result of deals that were made long before Nextel succeeded in the cell phone business.
Nextel Partners was formed in 1998 to jump-start Nextel's expansion. Nextel didn't have the money to build a nationwide network to compete with Verizon, Cingular and other cell phone competitors. To build out the boondocks, Nextel licensed its brand, its technology and its network to affiliates.
Latin American rights went to what is now NII Holdings Inc. of Reston. One of the Washington area's hottest stocks lately, NII Holdings shares have gained 64 percent this year. NII is not involved in the Sprint Nextel dispute and is expected to remain independent.
Nextel Partners got the franchise to serve 58 million potential customers in 53 markets, mostly medium-size cities such as Des Moines, Little Rock and Boise, Idaho.
Nextel put up some of the capital for Partners, but the new company had to sell stock and bonds on its own. Investors were skeptical because Partners has a peculiar vulnerability: It is nothing without Nextel. If something happened to Nextel, Partners could be left out in the cold.
To make sure Partners would not become an orphan, the mandatory buyout provision was written into the company's charter. That provision was triggered when Sprint and Nextel completed their $35 billion merger in mid-August.
The feuding began when Sprint and Nextel announced plans to phase out the Nextel label and use the Sprint brand. That left Nextel Partners without a brand name. Partners can't switch to the Sprint label because Sprint already does business in its territory.
Orphaning the Nextel brand created bad blood at Nextel Partners, and it left the company with little choice but to exercise its option to sell itself to Sprint Nextel.
The 1998 agreement not only gave Partners the right to demand to be bought, but it also spelled out in elaborate detail how the price was to be determined. Buyer and seller each is supposed to hire an outside appraiser to value the business. If the two valuations are more than 10 percent apart, the appraisers are to hire a third professional to break the tie.
The price, as Partners interprets the provision, is supposed to be based on what the business would be worth in a competitive public auction, in which the winning bidder pays a premium over the stock market valuation of Partners.
Sprint Nextel asked a Delaware judge to "clarify" the valuation procedure and demanded that Partners turn over financial records needed to put a price on a deal.
Partners' response was that the process is perfectly clear, that what Sprint Nextel is really doing is stalling and trying to drive down the price of Partners' stock.
Neither side would make executives available to discuss the dispute in detail because of the litigation.
While the legal maneuvering continues, today's voting by Partners' stockholders will trigger the appraisals. Each company will have 20 days to pick appraisers, who then will have 45 days to set Partners' value. Whether the appraisals will be made public is in dispute. Partners says they should be; Sprint Nextel considers them confidential.
Telecommunications analysts are overwhelmingly on the side of Partners when it comes to valuing the business. That's understandable because analysts have been recommending Partners stock for months, predicting that it would bring as much as $29 to $30 a share if investors get the premium called for under the provision in the agreement with Nextel.
Sprint Nextel, on the other hand, says the price of Partners stock already reflects a premium for investors, which is why the stock price has climbed to $25.51 a share from $19.54 this year.
The stock tables tell us every day how much Wall Street thinks Nextel Partners is worth. The appraisers will give their answers a few days after Christmas. Then the lawyers will take over.
Sitting on a 30 percent gain in their Partners stock since the first of the year, cautious investors are probably tempted to settle for that and sell. On the other hand, there may be more money to be made as the dispute plays out over the next few months. But that's not a bet on the stock market; it's a bet on the courts, which are even harder to handicap.
Jerry Knight's e-mail address is email@example.com.