NEXTEL PARTNERS TRADES BARBS WITH SPRINT NEXTEL ABOUT VALUE

Nextel Partners is one of the perennial stars of the wireless industry during the quarterly earnings season, and the Kirkland, Wash., company did not fail to impress when it reported third-quarter numbers last week. However, the good news about earnings was overshadowed by the ongoing battle over the perceived value of Nextel Partners as it moves toward a likely acquisition by Sprint Nextel.

Shareholders of Nextel Partners are scheduled to vote this week on exercising a “put” right that would result in Sprint Nextel acquiring the 68% of Nextel Partners, its secondary markets subsidiary, that it does not already own. However, the two companies have been trading barbs and accusations for several months over what the fair market value of Nextel Partners would be in such a deal. As of last week, Nextel Partners' stock had traded in a 52-week range between $16 and about $27 per share.

The already controversial issue became more heated within the last 10 days when Nextel Communications, an organization now listed as a subsidiary of Sprint Nextel, filed a federal lawsuit accusing Nextel Partners of inflating its stock price, thereby inflating the valuation of the company in an attempt to gain a premium price in an acquisition by Sprint Nextel.

However, the bitterness stepped up another notch, when, on the same day last week that Nextel Partners issued a preview of its strong third-quarter earnings report, WIP Corp., another subsidiary of Sprint Nextel, filed a second lawsuit against Nextel Partners that alleged the latter had not provided the former with financial records, future revenue forecast and other documents in a timely manner that would help Sprint Nextel make its own determination of Nextel Partners' fair market value.

“This is a PR move on the part of Sprint Nextel,” wrote Jennifer Fritzche with Wachovia Capital Markets, in a research note issued last week. She further wrote that it seemed “quite the coincidence” that Sprint Nextel filed its second lawsuit on the same day of Nextel Partners' earnings preview. “We think this is yet another scare tactic on the part of Sprint in an effort to pressure [Nextel Partners].”

Nextel Partners, meanwhile, filed a counter-claim, denying most of the allegations presented in both lawsuits.

Nextel Partners said in that filing that it currently has a market capitalization of around $7 billion. In its third-quarter earnings preview, the company said it had posted quarterly record subscriber additions of 107,200, while experiencing only 1.3% monthly customer churn. Financially, the carrier reported revenue of $445.2 million for the quarter, which was up 32% from the same quarter the previous year. The full earnings call was scheduled to take place late last week after press time.

The earnings preview seemed to impress most analysts following Nextel Partners and had analysts looking forward to this week's vote on the put right process. According to a research note from Bear Stearns, the first valuations of Nextel Partners should become publicly available sometime within 65 days after the shareholder vote, with a final valuation likely to be determined by February 2006.