Sprint Nextel and Nextel Partners
What Is Fair Market Value?
The merger of Sprint and Nextel, creating Sprint Nextel (S), closed on August 12, 2005. Shortly thereafter, Nextel Partners, Inc. (NXTP), a publicly traded joint venture partner of Nextel and the operator of a significant portion of the Nextel Digital Wireless Network, recommended that its shareholders begin a process to exercise a right to put ("the Put") their shares in Nextel Partners to Nextel, now Sprint Nextel.
Nextel Partners' Put is a form of a buy-sell agreement, even though it does not have that name. While buy-sell agreements often have mutual buy and/or sell obligations, the Put in question is a one-way deal. The shareholders of Nextel Partners have the right to put their shares to Sprint Nextel according to the mechanism created by the Put agreement.
Nextel Partners' shares closed on Friday, September 9, 2005 at $25.28 per share, so the price should be easily determinable, right? Wrong!
The issues related to the Put are detailed and complex. This article discusses the first two of the defining elements of the Put, the standard of value and the level of value.
What Is a Buy-Sell Agreement?
I wrote about such agreements in a recent article, "Your Corporate Buy Sell Agreement: Ticking Time Bomb or Reasonable Resolution?"' In that article, 1 identified six defining elements in a corporate buy-sell agreement from a valuation viewpoint.
Defining Elements of Buy-Sell Agreements
- Standard of value
- Level of Value
- The "As Of" of Valuation Date
- Qualifications of Appraisers
- Appraisal Standards to Be Followed
- Funding Mechanism/Consideration