For the past few years, Sprint Nextel (NYSE: S) has tried to enter the markets of its affiliate, iPCS (NASDAQ: IPCS). The result has been extensive litigation.Well, in such matters, money is often the solution. So this week, Sprint agreed to purchase iPCS for $831 million (which includes the assumption of $405 million in debt). As a result, the litigation has been suspended.
iPCS provides mobile services in 81 markets (the states include Illinois, Michigan, Pennsylvania, Indiana, Iowa and Tennessee). But because of its small size, it has been tough to remain competitive. So, the deal to sell out -- especially at a nice premium -- certainly makes sense.
As for Sprint, it can now enter new markets -- adding 700,000 direct customers and 270,000 wholesale customers -- as well as simplify its operations. There will also be $30 million in annual synergies.
In fact, Sprint has been quite aggressive with M&A since 2005, when it purchased Nextel for $35 billion. Ironically, it was this deal that spurred the acquisitions for Sprint's affiliates, as conflict issues arose. Some of the deals included US Unwired, Nextel Partners, UbiquiTel and Alamosa Holdings.
Despite all this, the fact remains that Sprint continues to struggle, especially with its post-paid business. Basically, the company continues to lose customers. In other words, the best solution for Sprint may be to sell out. And, its deal for iPCS should help with that (since the litigation issue will go away).
So far in Monday's trading, the shares of iPCS are up 34% to $23.88.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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