Sprint Nextel to buy Schaumburg's IPCS for $426 million

Sprint Nextel Corp., the third- biggest U.S. wireless carrier, agreed to buy IPCS Inc. in a deal valued at about $426 million in cash to avoid an order to divest some of its push-to-talk subscribers.

The deal also includes about $405 million of net debt, Sprint said today in a statement. The purchase is expected to add to free cash flow in 2010, according to the Overland Park, Kansas-based company.

Sprint was at risk of having to divest customers on its iDEN network and may have been prevented from moving forward with its fourth-generation network expansion with Clearwire Corp., said Craig Moffett, an analyst at Sanford C. Bernstein & Co. The acquisition of IPCS, which sells service under the Sprint brand, should close by early 2010, the companies said.

"This avoids blowing a hole in their national coverage map and removes a significant legal overhang on the stock," said New York-based Moffett, who rates the shares "market perform" and doesn't own any. "It's a high price that reflects the fact that Sprint didn't have a lot of options. They were negotiating with a gun to their head."

Sprint will pay $24 for each share of IPCS stock, which is 34 percent more than IPCS's closing price on Oct. 16.

Sprint fell 3 cents to $3.44 at 4 p.m. in New York Stock Exchange composite trading. IPCS, based in Schaumburg, Illinois, rose $6, or 34 percent, to $23.88 on the Nasdaq Stock Market.

"It resolves the outstanding litigation between the two parties," Scott Sloat, a Sprint spokesman, said in an interview. He had no comment on how many subscribers Sprint stood to lose.

Lawsuits

Sprint struck deals with affiliates that allowed partners to sell service under Sprint's brand in return for building out the network. IPCS said it invested $300 million in the network in four states in exchange for exclusivity rights.

Sprint's acquisition of Nextel Communications Inc. in 2005 put it in breach of agreements with IPCS, a state court judge in Chicago said in February. The court told Sprint to shed Nextel operations in Illinois, Michigan, Iowa and parts of Nebraska by January.

In May, Sprint lost a bid to dismiss an IPCS lawsuit that sought to stop its network buildout with Clearwire. IPCS sued Sprint last month over its planned purchase of Virgin Mobile USA Inc., also citing breach of contract.

After buying Nextel, Sprint "pretty much had to buy up all of their affiliates to avoid competing with another product in an affiliate's territory," said Christopher King, an analyst at Stifel Nicolaus & Co. in Baltimore, who rates Sprint shares "hold" and doesn't own them. "This was only a matter of time. The two sides were suing each other into oblivion."

Sprint had already counted IPCS's more than 700,000 wireless users and 270,000 wholesale customers as its own. Sprint posted almost $3 billion in losses in the year through the second quarter after losing millions of contract subscribers.