UPDATE 2-Sprint to buy IPCS, suspend litigation

Mon Oct 19, 2009 12:55pm EDT

* Sprint to pay $24 per iPCS shares, assume $405 mln debt

* Total deal value $831 mln, including debt

* Companies to seek immediate halt of all pending lawsuits

* iPCS shares up 33 pct, Sprint down 0.86 pct (Adds analyst quote, background details)

NEW YORK, Oct 19 (Reuters) - Sprint Nextel Corp (S.N) will buy wireless affiliate iPCS Inc IPCS.O for about $426 million to resolve their long-standing legal issues, marking the latest in a series of nine affiliate acquisitions by Sprint.

With this acquisition, Sprint has spent more than $16 billion, including debt, to buy out the affiliates since its 2005 purchase of Nextel Communications kicked off multiple legal battles. Sprint's market capitalization is just under $10 billion.

IPCS shares rose 33 percent after Sprint said it would buy all its shares for $24 each, a 34 percent premium to its Friday closing price of $17.88, the companies said. Sprint will also assume $405 million of debt, for a total deal value of $831 million.

IPCS, which has exclusive rights to use the Sprint brand in its operating regions, has been battling with the No. 3 U.S. mobile service provider since its Nextel purchase, arguing that the Sprint Nextel deal violated its affiliate agreement.

The affiliate, which wanted Sprint to stop operating the Nextel network in IPCS markets, also sued Sprint over a deal that gave it 51 percent ownership of Clearwire Corp CLWR.O, saying that this deal also violated the affiliate agreement.

Under the agreement announced on Monday, the companies plan to seek to suspend all pending litigation between them, with final resolution upon closing of the deal, expected either in late 2009 or early 2010. As a result, Sprint said it no longer has to divest the Nextel network in some iPCS markets.

Analysts said that while the deal removes the uncertainty of litigation, it would not help the company to stem customer losses, which it has battled for years.

"Sprint has the cash on hand to finance the transaction, but it will mildly dilute the company's credit ratios," Piper Jaffray analyst Chris Larsen said in a research note.

He estimated that the deal would raise Sprint's 2010 ratio of net debt to earnings before interest, tax, depreciation and amortization to 2.20 times compared to 2.11 without the deal.

The transaction value is 6.4 times estimated 2010 adjusted earnings before income, taxes and depreciation, the companies said in a statement. Sprint forecast $30 million of annual cost savings and expects the deal to add to free cash flow in 2010.

The deal expands Sprint's direct service territory to cover a potential 12.6 million customers and bring Sprint more than 700,000 PCS users and 270,000 wholesale customers.

Sprint said shareholders with approximately 9.5 percent of the outstanding common shares of iPCS have already agreed to tender their shares for the deal, which it expects to close in the fourth quarter or early 2010.

Sprint has two remaining affiliates, privately held Swiftel and Shentel, which has just roughly 216,000 subscribers.

Citigroup Global Markets Inc was Sprints financial adviser for the deal and its legal adviser was King & Spalding LLP while iPCSs financial advisors were UBS and Morgan Stanley and its legal advisor was Mayer Brown LLP.

IPCS shares jumped $5.97 to $23.85 and Sprint shares rose 1 cent to $3.48 in premarket trading. (Reporting by Tiffany Wu and Sinead Carew; Editing by Derek Caney)

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