Sprint Nextel named Embarq CEO Dan Hesse as its new president and chief executive Tuesday, hoping the telecom veteran can help the No. 3 U.S. mobile service provider turn around its business.
Hesse, 54, is already familiar with Sprint, having worked at the company's local phone service division for a year before it was spun off to create Embarq. Embarq named its general counsel, Tom Gerke, as interim CEO.
Analysts had speculated that Hesse could be tapped to replace Gary Forsee, who resigned as Sprint CEO in October after the company posted more than a year of customer losses and ceded market share to rivals such as AT&T and Verizon Wireless.
"I think it's a safe hire," said Stifel Nicolaus analyst Christopher King. "People are going to be relieved that the process is done.
Shares of Sprint , whose market value is around $41 billion, rose 1.5 percent to $14.13 in early trading on the New York Stock Exchange. Embarq , which has a market value of $7.5 billion, fell 26 cents to $47.40.
Analysts said Hesse is a capable manager with an extensive history in the telecom industry. He spent 23 years at AT&T, including postings as president and CEO of AT&T Wireless Services from 1997 to 2000.
Investors will be looking to Hesse to help Sprint stem subscriber losses, as well as to make some critical strategic decisions such as on its plans to build a new high-speed wireless network based on WiMax technology.
WiMax has yet to be commercially proven and Wall Street has been concerned that Sprint's $5 billion target spending on WiMax is too high. Some analysts have suggested options such as scaling back the spending or spinning off the wireless unit.
"Sprint Nextel's problems are bigger than any one person, a CEO, can change in the near term," said Stifel's King, who has a hold rating on Sprint shares and does not cover Embarq.
Sprint had posted a 77 percent drop in quarterly profit to $64 million, or 2 cents per share, last month as it lost more subscribers. The company withdrew a 2008 profit target and said it would give an outlook early next year.
It also rejected a $5 billion investment offer by a group including former Sprint Chairman Tim Donahue, South Korea's SK Telecom Co Ltd and Providence Equity Partners, a source familiar with the matter told Reuters last month.
Hesse had been chairman and CEO of Embarq since its inception in 2006. Most analysts view his tenure favorably, crediting him for leading recent cost cuts including a consolidation of call centers, and boosting its high-speed Internet business to make up for a fall in traditional phone subscribers.
Embarq said that in connection with Hesse joining Sprint, the two companies have reached an agreement that is "financially and strategically beneficial" to Embarq shareholders. It did not elaborate.
"We will conduct an orderly process to select a permanent chief executive officer, and Tom Gerke will be a strong candidate for the position," Embarq Chairman Bill Owens said in a statement.