Sometimes you have to spend money to make money. Perhaps that's the proper frame of mind from which to view Sprint's (NYSE:FON) decision to buy out its affiliate US Unwired (NASDAQ:UNWR).
By spending $1.3 billion in cash to buy up US Unwired, Sprint frees itself from some potentially serious ongoing litigation -- litigation that could have resulted in Sprint being blocked from closing its $35 billion deal with Nextel (NASDAQ:NXTL).
Heck, if you're gonna spend $35 billion and give both CEOs a generous pay package, what's another $1.3 billion? It's only the shareholders' money, right?
Glibness aside, Sprint might not have had a lot of choice here. US Unwired's lawsuit alleged that Sprint had forced it to accept unfair and disadvantageous financial terms. What's more, US Unwired asserted that Sprint, in buying Nextel, would be acquiring affiliates that competed with US Unwired -- an alleged violation of its exclusivity agreement with Sprint. US Unwired filed a motion seeking to block the Nextel deal.
Now, I'm not a big fan of scuttlebutt, but apparently a lot of people thought that US Unwired had a pretty fair chance of winning its court battle. Were that to happen, who knows what could have befallen Sprint. Certainly it would have appealed the decision as far as it could, but that would have almost certainly delayed the Nextel deal.
Accordingly, FON investors looking at this deal have to use a somewhat broader perspective in their analysis. US Unwired served about 500,000 customers in predominantly rural areas, and the acquisition isn't going to change Sprint much in and of itself. But if it clears the path to the Nextel deal, it's likely to be trivial -- little more than rounding error in the final analysis.
Of course, this might not be the end of the story. Nextel Partners (NASDAQ:NXTP) may not go quietly either. This company, an affiliate of Nextel, has the right to exercise a put that would force its buyout in a Sprint-Nextel merger should shareholders approve the exercise of that right. And then, of course, you have other Sprint affiliates like Alamosa Holdings (NASDAQ:APCS) and UbiquiTel (NASDAQ:UPCS), which may need to be pacified along the way as well.
US Unwired shareholders who've held these shares for a few months or longer should be feeling pretty happy. But Sprint and Nextel investors may be forgiven for looking over their shoulders every once in a while. As this bit of business with US Unwired proves, big mergers are never quite as simple as they seem in that first optimistic press release.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
