Company Ananlisys Of Nextel Essay Research Paper

Company Ananlisys Of Nextel Essay, Research Paper

There are many different factors that influence a company as to what it will produce. Things such as good earning reports could send a stock soaring, where as bad earning reports will usually send it plummeting. Thinks suck as mergers and takeovers greatly influence the price of a stock and the way it conducts its business. I recently bought stock in a company called Nextel Communications Inc. (NASDAQ symbol NXTL, www.nextel.com). I feel that it was a very wise purchase, as I will describe in this report. In the last two months, Nextel Communications Inc. has been on a huge rally. Its stock went soaring from 17 dollars to 39 dollars in two months. This is very exciting for Nextel shareholders (I didn.t really buy it because I was a little scared) because it means that there is something taking place in the company like never before. The main thing that makes Nextel special is the type of business it sells. Nextel has a unique service that benefits all different types of business. It combines cellular telephone with a two-way radio service. This enables employers to communicate directly to a second party with the two-way radio feature. Or a person can .group call. and is instantly enabled to call multi-users at one time. It also has a fully digital wireless telephone service that makes it a versatile tool in business communications. In this report I will analyze what contributed to this huge increase in stock price and how the company is gearing up to be taken over by a much bigger company.

There was a very important move that the company made early in the year. It was selling its communication towers to Spectrasite Inc. Spectrasite Inc. is a company that owns communication towers. It then rents the space out, to those that need space to provide communications. Nextel is going to then rent those towers back from Spectasite to continue their operation. Nextel sold their towers to Spectrasite in order to gain cash flow. They got 200 million dollars in the deal and will use this to run day to day operations. These types of business, I have found, will lose a lot of money in the first few years of business and need huge sums of cash flow to keep it afloat until it is able to make profit. This deal with Spectrasite enabled then to keep the business going strong. They are earning yearly $-1,518.9 Million which is very discouraging to say the least. But their number of subscribers, currently at 3 Million, increases monthly, which helps bring their sales numbers up to $1,846.8, Million. Another thing that makes their business very appealing, is that they are the only ones in this specific market. Airtouch communications was formerly a rival company, but since it was takes over by HRP group, it has been takes out of the running as a competitor. As I said Nextel is gearing up for a takeover. Why does MCI WorldCom Want Nextel. Bernie Ebbers Chairman and Vice-Chairman John W. Sidgmore have held preliminary talks to acquire Nextel Communications Inc., according to sources close to Nextel. The deal would give MCI WorldCom 3 million subscribers, a national wireless network, and operations in six international markets. And most importantly it would help MCI WorldCom plug a gap that is becoming increasingly dangerous. Not only is wireless the fastest-growing form of voice phone service, it is also becoming important for competition in the business markets MCI WorldCom targets. Later this year, AT&T is planning to introduce a new bundle of services for corporate customers designed specifically to take advantage of MCI WorldCom’s weakness in wireless. Under that plan, a business that buys long distance from AT&T for, say, 10 cents a minute would be able to offer its employees the same rate on wireless phones–without paying any extra roaming charges. “Our business customers want wireless,” says Michael Keith, the newly appointed head of AT&T’s corporate unit. “They’re asking about it every day.” Businesses already account for 47% of wireless revenues in the U.S., says market researcher Dataquest Inc. That share could increase if AT&T and others can market bundles of services to them effectively. “If there was a package deal and we saved money, we would go to them immediately,” says Sanford Rich, a senior vice-president at money manager GEM Capital Management Inc.

Beyond risking erosion in the business market, WorldCom could crimp its growth prospects if it sits out the wireless boom. The number of U.S. wireless customers has risen 25% in the past year, to 69 million, according to the Cellular Telecommunications Industry Assn. By 2003, wireless will account for 15% of total communications minutes in the U.S., up from 3% today, Dataquest estimates. Says Andrew Cole, head of the wireless practice at consultant Renaissance Worldwide Inc.: “to play in the telecom world, you have to have a wireless business.”

That’s what has inspired the talks between MCI WorldCom and Nextel. “It’s a good marriage,” says Dataquest analyst Matt Hoffman. But not a cheap one!! Nextel would sell for a premium over its market value of $11 billion, and MCI WorldCom would have to assume debt of nearly $8 billion–all for a company that lost $1.8 billion in 1998. A Nextel deal would likely chop MCI WorldCom earnings by as much as 25%, or $1.3 billion, in 2000, says Merrill Lynch & Co. analyst Daniel Reingold. MCI WorldCom declined to comm