Sprint, Nextel Eye Growth, Cost Reductions

Updated from 8:20 a.m. EST

Sprint (FON) and Nextel (NXTL) confirmed their $35 billion merger Wednesday, setting ambitious plans for growth along with extensive cost-cutting.

The combined company is to be called Sprint Nextel, with operational headquarters in Sprint's hometown of Overland Park, Kan. Sprint Chief Gary Forsee will run the company, which will be the third-largest U.S. wireless carrier behind Cingular and Verizon Wireless, boasting about 39 million subscribers. Nextel Chief Tim Donahue will be chairman.

"Sprint Nextel is expected to have the highest average revenue per user (ARPU) in the wireless industry and to be positioned to lead the industry in sustainable revenue growth," the companies said in their Wednesday morning press release. "Sprint Nextel will be well positioned in the fastest-growing areas of the telecommunications industry, including mobile data and push-to-talk services, where Sprint and Nextel are innovators in technology."

Shares in both companies slipped modestly Wednesday following a sharp run-up in recent days. Investors have applauded the match of Sprint's strong consumer business with Nextel's loyal business following.

"This is good for Nextel because it solves their technology migration issue," says analyst Lisa Pierce of Forrester, referring to Nextel's need to upgrade its network for the so-called third-generation suite of fast wireless data capabilities. Meanwhile, she sees the deal as a good one for Sprint because it strengthens the company's hand in the lucrative business services market.

Early Wednesday, Sprint fell 29 cents to $24.81 and Nextel dropped 9 cents to $29.90.

Meanwhile, a rumored bid from Verizon Wireless failed to materialize even as many investors continue to see the company as the key to how the industry's consolidation trend plays out.

Terms call for Nextel shareholders to receive stock and cash equal to 1.3 Sprint shares, a ratio that currently comprises 1.28 Sprint shares plus 50 cents. Shareholders of both companies would end up owning exactly half of the surviving entity and the board would include six directors from each.

The companies confirmed several features that had been previously reported, most notably a plan to spin off Sprint's local phone business after the transaction is completed, probably late next year. That business does about $6 billion in annual revenue.