Sprint, EarthLink Adjust Alliance
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Sprint Corp. and EarthLink, Inc., ending possible plans for a September merger, decided Friday to loosen the ties holding the two companies together.
The revision ends the co-branding arrangement struck between the two companies. In the future, Sprint can offer Sprint-branded Internet services provided by EarthLink on a wholesale basis.
EarthLink announced it would take an $11.3 non-cash charge in the first quarter to write off intangible assets from the original agreement.
Garry Betty, EarthLink chief executive officer, said that ending the marketing arrangement makes finding new channel partners for his company a lot easier.
Under the terms of the old agreement, Betty said it was hard even getting potential partners to understand its relationship with Sprint "much less trying to get them to a level of comfort that would allow for any substantial discussions."
By revising the terms of its relationship, Sprint also gives up first-rights status, under the original agreement, to acquire the nation's second-largest Internet service provider in September, although the long-distance company has the right to offer a counterproposal if another makes the attempt.
Sprint also loses its board seats in the company, although it will keep the stock it already owns in EarthLink and has the option to retain its 27 percent ownership position whenever EarthLink increases its total voting shares.
The two companies still plan on working closely together for future endeavors, officials said. In addition to contracting EarthLink product developers, Sprint will continue to work with EarthLink to develop Internet services that work on its own product line of PCS digital phones.
William Esrey, Sprint chairman and chief executive officer, said the original agreement was a good one, but didn't address clearly the changing industry.
"The industry has evolved since we first joined forces, and we felt that we needed to restructure our business relationship to reflect the changing needs of both the market and the two companies," Esrey said. "This change in our agreement gives both companies more flexibility in terms of forming relationships, but still allows us to leverage each other's strengths."
Esrey and Betty said that while they will be competing in some markets for the same broadband customer, it was more likely they would work together in those situations.
In the third quarter, EarthLink is offering cable Internet access on AOL Time Warner's network. Sprint has the nation's largest fixed wireless high-speed Internet service in the U.S.
Shares of EarthLink were up 1 and 13/32 on the news, while Sprint's slipped 60 cents to $25.20 per share.