Sprint Nextel (S), the third-largest US wireless carrier, has received all regulatory approvals for the impending acquisition of its wireless affiliate iPCS Inc (IPCS). The US telecom regulator Federal Communications Commission (FCC) and the Public Service Commission of West Virginia have reportedly approved the transaction, which is now expected to close in the fourth quarter of 2009.
 
Sprint announced the acquisition of iPCS Inc in October 2009. If eventually consummated, the acquisition will end the long legal battle between the two entities. Based in Schaumburg, Illinois, iPCS exclusively markets wireless services under the Sprint brand across 81 markets in several Midwestern states.
 
Under the agreement, Sprint will acquire all outstanding shares of iPCS Inc at $24 each, representing a 34% premium to iPCS’s closing price on Oct 16, 2009. Sprint will make a cash payment of approximately $426 million for the acquisition, and will assume $405 million of iPCS’s net debt.
 
The deal represents the latest in a series of acquisitions of its affiliates by Sprint. The iPCS acquisition leaves just 2 affiliates (out of the original 10), Swiftel and Shentel. Both are small privately held operators with a limited subscriber base.
 
Since 2005, iPCS has been in litigation as it has continued to sue Sprint on the carrier’s acquisition activities including the purchase of Nextel’s business, 51% stakeholding in Clearwire Corp (CLWR) and the recently concluded acquisition of Virgin Mobile USA.
 
iPCS has argued that these investments have violated its affiliate agreements with Sprint. The company has also demanded the divestiture of Nextel’s iDEN wireless networks in specific iPCS markets. The acquisition is likely to end all the pending litigations between the two entities and Sprint will no longer be required to divest any of its network assets.
 
The acquisition of iPCS will expand Sprint’s service territories by providing access to a potential subscriber population of 12.6 million, which falls under the affiliate’s network coverage. Moreover, Sprint will expand its direct customer base with iPCS’s more than 700,000 wireless subscribers and 270,000 wholesale customers. The transaction is also expected to offer Sprint approximately $30 million in annual synergies and will be accretive to free cash flow in 2010. 
 
While Sprint’s existing cash resources (approximately $5.9 billion) are adequate to fund the acquisition, assumption of iPCS-related debt will further stretch the company’s balance sheet, considering its current high debt. 
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