Nov. 29 (Bloomberg) -- Sprint Nextel Corp. rejected a $5 billion investment offer from a group led by South Korea's SK Telecom Co. that would have made former Chairman Tim Donahue the company's chief executive officer, the Wall Street Journal said.

Donahue and the investment group, which also included Providence Private Equity Partners, made the offer in a letter before Thanksgiving, the paper reported. The bid took the form of securities that would eventually convert into equity, at a level 20 percent to 30 percent higher than Sprint's current share price, the Journal said.

Sprint, the third-largest U.S. mobile-phone company, has been searching for a new CEO since Gary Forsee departed in October. The company lost 337,000 contract subscribers last quarter after dropped calls and service problems sent customers to larger rivals AT&T Inc. and Verizon Wireless.

The Sprint board is reluctant to rehire Donahue, blaming him for problems stemming from Sprint's 2005 purchase of Nextel Communications Inc., the Journal said. He was Nextel's CEO before the acquisition.

The board didn't meet with Donahue or the investors before turning down the deal, the newspaper said. Sprint spokesman James Fisher declined to comment when contacted by Bloomberg News. SK Telecom spokeswoman Lauren Kim didn't immediately respond to an e-mail before normal business hours in Seoul.

Sprint, based in Reston, Virginia, rose 44 cents, or 3 percent, to $15.20 at 4 p.m. in New York Stock Exchange composite trading. The shares have fallen 20 percent this year.

Keeping Customers

Sprint plans to improve customer retention in the current quarter, acting CEO Paul Saleh said last month. The company will offer more customer-service features online and sell new phone models on Nextel's network, he said.

Shareholders, including Ralph Whitworth of Relational Investors LLC, have urged Sprint to focus more on improving the operations of its mobile-phone business. After Forsee's departure, Sprint dropped plans to work with Clearwire Corp. to build a new high-speed wireless network. Sprint continues to construct the network by itself.

SK Telecom, South Korea's largest mobile-phone operator, is seeking investments outside of its home country, where almost nine out of 10 people already have a wireless handset. Chief Executive Officer Kim Shin Bae said in an interview last month that the company was reviewing ``various collaboration options'' with Sprint.

Helio LLC, SK Telecom's U.S. venture with Atlanta-based EarthLink Inc., hasn't made a profit since it started in May of last year. The venture uses Sprint's network to sell wireless services.

To contact the reporters on this story: Linda Shen in New York at Lshen17@bloomberg.net; Crayton Harrison in Dallas at tharrison5@bloomberg.net

Last Updated: November 29, 2007 17:34 EST