Sprint rejects $5 billion investment offer: source

By Michael Flaherty and Sinead Carew

NEW YORK (Reuters) - Sprint Nextel Corp (S.N) has rejected a $5 billion investment by a group including former chairman Tim Donahue, South Korea's SK Telecom Co Ltd (017670.KS) and Providence Equity Partners, a source familiar with the matter said on Thursday.

The offer, submitted before the U.S. Thanksgiving holiday last Thursday, was in the form of convertible-preferred securities that could be converted into equity for 20 percent more than Sprint's current stock price, said the source, who did not want to be identified. The source said the offer was not meant to be hostile.

A spokesman for SK Telecom, South Korea's top mobile operator with a 52 percent market share, confirmed on Friday it approached Sprint in mid-November with several cooperation options but hadn't heard back from the U.S. company.

Sprint, whose market value is around $43 billion, declined to comment, while Donahue and Providence could not immediately be reached.

SK Telecom is seeking to expand in the United States and said earlier this month it was boosting its investment in Helio, a high-end wireless venture with EarthLink Inc (ELNK.O) that rents space on Sprint's network.

Sprint, the No. 3 U.S. mobile service, has lost market share to rivals such as AT&T Inc (T.N) and Verizon Wireless, and is looking for a new chief executive to replace Gary Forsee who stepped down last month.

The Wall Street Journal earlier reported on its Web site that the investor group had also sought to install Donahue as

CEO.

"We have a search process in place," said Sprint spokeswoman Leigh Horner, who declined to comment further.

Sprint shares closed up nearly 3 percent at $15.20 on the New York Stock Exchange, and rose another 6 cents in after-hours trade. Shares in SK Telecom, with a market value of about $22 billion, rose 0.41 percent to 247,500 won at 0510, trailing the KOSPI's 1.83 percent rise.

Rumors have abounded about the potential for a bid for Sprint as its shares languish due to subscriber losses despite some analysts rating takeover prospects as low because of its large market capitalization.

Several analysts said the rejected offer would not have solved Sprint's troubles.

"Sprint is suffering from a lot of problems, but I do not think they're facing a liquidity crunch," said Stanford Group analyst Michael Nelson. Still, "there are large investors willing to make a major investment in Sprint and ... believe there is significant value in Sprint at current levels," Nelson said.

Sprint should focus on improving its operations rather than on a buyout, Fitch analyst Bill Densmore added.

IMPROVEMENTS, CEO NEEDED