Sprint Nextel has turned down a $5 billion investment offer from SK Telecom and private equity firm Providence Equity Partners, the WSJ reported Thursday. The offer was in the form of convertible-preferred securities that could be converted into equity for a 20% premium to Sprint's current stock price. The terms of the offer included the installation of former Sprint Nextel Chairman Tim Donahue as CEO. Donahue and the consortium submitted the proposal in a November 10 letter to the board that offered "a deep wireless management team, a strategic relationship with a leading global wireless operator, significant strategic capital, and the public market sponsorship of an accomplished private equity investor." The board spurned the offer without meeting with Donahue or any members of the consortium -- a "unilateral rejection" that the WSJ said "might upset some investors, who have seen Sprint's stock price drop 36% since early June." Sprint is seeking a new CEO to replace Gary Forsee, who resigned a month ago under pressure from the board. Donahue was CEO of Nextel and negotiated its $35 billion sale to Sprint in 2004. He remains popular with the Nextel employees at the combined company, but he and Nextel are held accountable by some Sprint directors and investors for the company's poor performance since the merger. "They say Sprint bought a wireless carrier with a creaky network that needed major upgrades and a user base susceptible to being lured by competitors," the WSJ said. The board itself is divided into Sprint and Nextel factions, with both sides supporting the idea of bringing in a CEO from outside. Activist investor Ralph Whitworth, whose Relational Investors LLC holds about 2% of Sprint stock, supported the board's rejection of the offer. "It's bad business to link minority investments with CEO selection decisions," he said. "The board did the right thing."
Commentary: iPhone’s Competitors: How Are They Doing? • Sprint On The Road To Recovery, Hopefully • Wireless Carriers are not Immune to Recession
Stocks to watch: S, SKM. Competitors: VZ, VOD, T. ETFs: WMH, TTH, IYZ
Earnings call transcript: Sprint Nextel Q3 2007