Shareholders Ring Bell on Sprint Nextel

OLATHE, Kan. (CN) - Sprint Nextel executives profited from insider trading, misled investors about the company's financial health, and gave its CEO an excessive severance package as he left the company in disarray, shareholders say in a derivative complaint Johnson County Court.

Named plaintiff Cheryl Randolph says Sprint bought Nextel in 2005 in a "drastic action" that executives believed was necessary for Sprint to compete with AT&T and Verizon.

At the time of the $37.8 billion purchase, Sprint executives claimed the move would allow "the combined company to achieve merger synergies worth much more than the purchase amount," according to the 45-page complaint.

But Sprint Nextel was never able to integrate the systems, Randolph says, and Nextel's subprime consumer base reduced Sprint's average revenue per user and increased the percentage of subscribers who discontinued service each month.

Randolph says the company tried to cover up the problems by announcing tightened credit standards, and the successful integration of Sprint's and Nextel's systems.

But Randolph claims Sprint Nextel, in a move known only to executives, actually lowered the credit standards, to boost subscriber numbers, and hid the fact that incompatibility issues obstructed the integration of Sprint's and Nextel's networks.

"In addition, to further keep up the charade, the Board permitted Sprint to repurchase its own stock to show that its stock price did not adequately reflect the company's 'strong balance sheet and investment grade credit rating, substantial free cash flows and confidence in [its] future,'" the complaint states. "In total, the defendants directed Sprint to expend over $1.9 billion to repurchase its own stock at inflated prices.

"Although the public was unaware of these facts, company executives were not. They took advantage of their possession of this material, non-pubic information and sold off their personal Sprint holdings to reap proceeds of over $14 million."

Once news of Sprint Nextel's failed integration surfaced, Randolph says, the company's market capitalization plunged by 64 percent, a hit of $42 billion.

About this time, Randolph claims, Sprint CEO Gary D. Forsee left the company "in shambles" - but with a $13 million severance package.

Randolph seeks damages for breach of fiduciary duties, waste of corporate assets and unjust enrichment. She also wants stricter corporate governing policies, including limits on bonuses and severance packages. She is represented by W. Greg Wright of Beam-Ward, Kruse, Wilson in Overland Park, Kan.

Eighteen Sprint Nextel executives are named as defendants. Sprint Nextel is a nominal defendant.

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