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Microsoft, Nextel team up
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May 10, 1999: 1:16 p.m. ET
Accord would help establish wireless portal, dent Nextel's $7 billion debt
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NEW YORK (CNNfn) - Microsoft Corp. is teaming up with wireless provider Nextel Communications to establish an Internet portal for wireless communications devices such as cell phones, e-mail and pagers, a move seen as bolstering Microsoft's presence in telecommunications and helping Nextel get a grip on its debt.
Microsoft (MSFT) is buying roughly a 5 percent stake in Nextel (NXTL) for $36 per share in cash, or 1 percent less than Nextel's closing price on Friday, which adds up to a $600 million investment, according to Microsoft spokeswoman Sue Barnes. The announcement comes less than a week after No. 2 U.S. long-distance phone company MCI WorldCom (MCI) ended negotiations to buy Nextel.
The plan represents another move by the Redmond, Wash.-based software giant to expand beyond computer operating systems and into communications delivery. The announcement also follows on the heels of Microsoft's agreement with AT&T to use its operating system to provide cable television, telephone and Internet services with its Windows CE operating system. AT&T (T) is currently set to become the largest U.S. cable-TV firm.
As part of the agreement, Nextel customers will have access to the Microsoft network of Internet services, such as e-mail and address books from Microsoft's Hotmail, weather and sports from MSNBC and calendar services from Microsoft's recently acquired Jump Networks. Cellular phones and interactive pagers also will run through the portal.
Nextel, in turn, will have the Microsoft name attached to its network, though Microsoft's investment is not exclusive to the company.
Not all good news
To be sure, not all telecom experts welcomed the announcement with enthusiasm.
"This is essentially Microsoft self-serving," said Kevin Roe, an analyst at ABN Amro in New York. "The Microsoft names helps and it provides some much-needed cash for Nextel, but the price paid was somewhat below what it should have been."
Roe said a typical arrangement of this kind would garner a 20-percent to 25-percent premium on the company's stock price -- particularly if the investment came from private, rather than public, sources.
"This (deal) had no premium to it at all," he said. "It demonstrates the company's value on the market at the moment." Rose currently rates Nextel a "hold," with a target price on the firm's stock of just under $30 per share.
Rose said one positive is that Nextel will get a large amount of cash it can use to tackle part of its debt. Nextel has been struggling to get a handle on the more than $7 billion in debt it currently owes. Nextel borrowed money in the form of high-interest bonds to finance expansion of its telecommunications networks, and for research and development into new wireless products and services.
Then again, "there's nothing to stop Microsoft from making a similar type of investment in one of Nextel's competitors," he said.
McLean, Va.-based Nextel provides digital and analog wireless communications services throughout the U.S. Its shares advanced 3/4 to 37-1/8 in early afternoon trading on Monday. Microsoft shares gained 1-1/4 80-5/16.
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