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
"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 .KS11 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.
Sprint has lost subscribers amid service problems, U.S. economic weakness and problems integrating its 2005 purchase of Nextel Communications -- seen by some as a failure. Donahue was CEO of Nextel at the time of the $35 billion deal.
Besides SK Telecom, investors have also speculated that Britain's BT Group Plc (BT.L) may be interested.
Providence, which has a history of investing in telecom companies and has taken part in some of the largest leveraged buyouts in the past two years, could be looking for smaller deals amid the current credit crunch.
SK's wireless network runs on the same technology Sprint uses and has seen success in providing cutting edge data services. The companies could also share knowledge about WiMax, an emerging technology they are both working with.
A stake in Sprint would give SK an opportunity to showcase its technological strength, said Jin Chang-hwan, an analyst at Goodmorning Shinhan Securities in Seoul.
While some analysts say Donahue's past with the company could make him a bad CEO candidate, Stifel Nicolaus's Chris King was surprised Sprint did not appear to be considering the executive, who was popular during at Nextel and has allies on the board.
"Unless an imminent announcement of a new CEO is forthcoming, (the investment offer) suggests they're having a difficult time filling the position," he said.
Earlier in November, Sprint reported a 77 percent drop in third-quarter net profit to $64 million, or 2 cents per share, as it lost 60,000 subscribers. It also withdrew its 2008 profit growth forecast, dampening any hopes for a near-term recovery.
Additional reporting by Marie-France Han in Seoul and Ritsuko Ando in New York; editing by Lincoln Feast