Subject: [NEXTEL-1] Sprint Forced Out Officials Amid Questionable Tax Shelter

From: "sparkie_rf <[email-masked]>" <[email-masked]>
Date: Wed, 05 Feb 2003 12:38:08 -0000

Sprint Forced Out Officials Amid Questionable Tax Shelter
Wednesday February 5, 4:00 am ET 

Sprint Corp.'s two top executives were forced out as part of an 
unfolding boardroom dispute over their use of a questionable type of 
tax shelter that is under scrutiny by the Internal Revenue Service, 
people familiar with the situation told The Wall Street Journal.

The pending departure of William Esrey, Sprint's chairman and chief 
executive, and Ronald LeMay, its president and chief operating 
officer, was disclosed last week. Investors generally believed that 
Mr. Esrey, 63 years old, was leaving because he had been diagnosed 
with lymphatic cancer. In fact, his departure was unrelated to his 
medical condition.

The two men, who had run Sprint since the mid-1980s, used the tax 
shelter to defer taxes on tens of millions of dollars resulting from 
their exercise of stock options in 1999 and 2000, the people 
familiar with the situation said. The tax shelters, which also were 
used by several other top executives at Sprint who haven't yet been 
named, were recommended and set up by Sprint's auditor, Ernst & 
Young LLP, according to these people. Ernst & Young also provides 
tax-planning advice to top Sprint executives and was potentially 
offering the same advice to hundreds of other executives at other 
companies. The Sprint executives are now facing potentially heavy 
financial losses and tax challenges by the IRS.

There isn't any indication that Messrs. LeMay and Esrey did anything 
illegal. And since their use of the shelter was blessed by Sprint's 
own auditors, it's still unclear just why the board concluded this 
was grounds for their being forced out.

Sprint's board had been weighing the matter for months, the people 
said. After consulting with legal and tax experts, the directors 
reluctantly decided they couldn't name Mr. LeMay to succeed Mr. 
Esrey, as had been widely expected, because of the potential for IRS 
action against them. Sprint's shares have fallen sharply since the 
options were exercised but the tax liability falls on the paper 
profits the men received at the time they exercised the options.

Sprint's predicament has thrown the company into a leadership 
crisis. The Overland Park, Kan., telecommunications concern has 
chosen Gary Forsee, vice chairman of BellSouth Corp., to succeed Mr. 
Esrey. But Mr. Forsee is currently in a legal battle with BellSouth 
to release him from a noncompete agreement in his contract. The 
matter is scheduled for a hearing in Superior Court in Fulton County 
in Atlanta today. Sprint is also under pressure to reassure 
investors as it releases its fourth-quarter results today.

Sprint, like the rest of the telecom industry, has been suffering 
from slow growth and falling prices. The leadership void creates the 
possibility that it could become a takeover candidate. Many industry 
experts believe Sprint needs to merge with another company in order 
to remain viable because it is losing ground in wireless and has 
recently slipped in long-distance to fourth place from third, based 
on number of customers. In New York Stock Exchange 4 p.m. composite 
trading yesterday, Sprint shares fell 14 cents to $12.36. At its 
peak in November 1999 the stock was trading at $75.50.

A spokesman for Sprint declined to comment on the situation. Sprint 
has acknowledged that Mr. Esrey is planning to leave the company and 
that Mr. Forsee is the chosen successor to Mr. Esrey. Messrs. Esrey 
and LeMay couldn't be reached for comment.

An Ernst & Young spokesman said it was company policy not to comment 
on its clients.

Wall Street Journal Staff Reporters Rebecca Blumenstein, Joann S. 
Lublin, Shawn Young, Ken Brown and Cassell Bryan-Low contributed to 
this article.
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Look Sprint has an insider actively leaking to the WSJ.

Marcel, does Nextel have any exposure on this issue.

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