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Sprint, Nextel Spinoff Would Be Among Kansas City, Mo.'s Largest Public Firms

Posted on: Thursday, 16 December 2004, 00:00 CST

Dec. 16--KANSAS CITY, Mo. -- It doesn't even have a name yet, but a spinoff from the Sprint Nextel merger already would qualify as the Kansas City area's second-largest publicly traded company.

As part of the Sprint Nextel deal, Sprint's traditional local telephone business would be spun off to shareholders of Sprint Nextel soon after the merger is completed sometime in the second half of next year.

The new local phone company would have annual sales of about $6 billion. The company would have about 22,000 employees in the United States, and at least 2,000 employees here.

That would put the local phone company in the No. 2 spot behind Yellow Roadway, which is expected to have more than $6 billion in sales this year, among area corporations. If Sprint's local division were listed on the 2004 Fortune 500, the proposed spinoff would rank about No. 308.

Sprint's chief executive, Gary Forsee, on Wednesday gave the yet-to-be-named company the tongue-in-cheek moniker of "Spinco."

Forsee, who would become chief executive and president of Sprint Nextel, said the new local company should be a consolation to Kansas City for losing the bigger company's corporate headquarters to Reston, Va., Nextel's hometown.

"This is about creating two new companies," said Forsee in a telephone interview Wednesday. "This is, I believe, good news for our employees. Good news for our customers, our investors, and I believe for Kansas City as well."

Sprint and Nextel executives made the decision to spin off the local phone division, which contains the historic roots of the century-plus-old phone company, for "strategy and clarity."

"It makes sense to separate that business in order to give it a chance to compete in the context of a local business that appeals to customers that want the local access line, that want broadband services, that want the ability to package and bundle together all of the things our local business has done," Forsee said.

He added that the merged company would be "spinning a very healthy, very competitive business that, in and of itself, will be successful."

With 7.7 million telephone lines, "Spinco" would be the largest independent telephone company in the U.S.

The spinoff would assume some of Sprint's estimated $13 billion in debt, but would be a good investment opportunity, Forsee said.

"The company is expected to continue to produce strong cash flows, and we will establish a capital structure that is appropriate to its financial prospects," Forsee said. Unlike Sprint Nextel, the local spinoff would pay an as-yet-undetermined dividend.

The local division reported operating income of $1.3 billion during the first nine months of the year, down about 5.5 percent from a year ago. That follows a trend in the industry, as consumers rely more heavily on wireless phones and less on traditional phone service.

Forsee said it has not been decided whether the new local company would have its headquarters at Sprint's Overland Park campus or elsewhere in the metropolitan area.

A management team, including a board of directors, also must be named to the new company.

Mike Fuller, a longtime Sprint executive, currently leads the company's local telephone division. He was at the Overland Park campus Wednesday morning watching with other employees as the merger was announced to the public.

The local division under the Sprint umbrella currently includes about 16,000 employees. About 2,000 local division employees are currently in Kansas City, with the remaining 14,000 spread across the 18 states where Sprint provides local telephone service.

But executives said the spun-off company would include a larger payroll because support and administrative functions that currently fall under Sprint's corporate umbrella would transfer to the local spinoff.

Sprint North Supply, Sprint's equipment business based in Gardner, is included in the local division. But company executives said it has not been decided whether it would be spun off or left as part of Sprint Nextel.

The Sprint Nextel move to form a new company from the local division comes in the wake of a similar proposal by Verizon Communications, the New York-based former regional Bell.

Verizon is considering selling off up to 14 million of the company's 54 million residential lines in less-populated markets or states with an "unfavorable" regulatory climate. The move would help the company raise cash as it rewires its network with fiber-optic cable and focuses on wireless service.

Blair Levin, a telecom analyst and managing partner of Legg Mason Wood and Walker, said telecom companies are shifting their focus from traditional business to wireless or moving toward fiber-optic cables that allow them to deliver everything from television programming to voice over Internet protocol phone service.

"It's really about a bigger issue in which the telecom sector really is restructuring its access base," Levin said. "The old copper (phone line) assets are being kind of restructured and placed in other hands."

By Suzanne King and David Hayes

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(c) 2004, The Kansas City Star, Mo. Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.

VZ, LM,

Source: The Kansas City Star (Kansas City, Missouri)

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