Nov. 29 (Bloomberg) -- Sprint Nextel Corp. rejected a $5 billion investment by South Korea's SK Telecom Co. and buyout firm Providence Equity Partners Inc. that would have brought back former Chairman Tim Donahue to run the mobile-phone company, according to a person familiar with the plan.

Donahue and the investment group made the offer in a letter before Nov. 22, said the person, who asked not to be identified because the approach was private. They proposed buying Sprint securities that would later convert into equity for 20 percent to 30 percent more than the current stock price.

Sprint, based in Reston, Virginia, has been searching for a new chief executive officer since Gary Forsee departed in October after 337,000 subscribers defected in the third quarter. Customers have left for AT&T Inc. and Verizon Wireless after complaining about dropped calls and poor customer service. Donahue, 58, was chairman following the 2005 merger with Nextel until he retired last year.

The board didn't meet with Donahue or the investors before turning down the deal, the person said. The group isn't interested in pursuing a hostile takeover. The Wall Street Journal reported the rejected approach earlier today.

Sprint spokesman James Fisher declined to comment and SK Telecom spokeswoman Lauren Kim didn't immediately respond to an e-mail before normal business hours in Seoul. Providence Equity spokeswoman Julie Fisher didn't immediately respond to a voice mail message left at her office in Providence, Rhode Island.

Sprint rose 44 cents, or 3 percent, to $15.20 in New York Stock Exchange composite trading. The stock has dropped 20 percent this year, compared with the 3.6 percent gain by the Standard & Poor's 500 Index.

Customer Retention

Sprint, the third-largest U.S. mobile-phone company, plans to do a better job keeping customers, acting CEO Paul Saleh said last month. The company will offer more customer-service features online and sell new phone models for Nextel's network, he said.

Shareholders including Ralph Whitworth of San Diego-based Relational Investors LLC have urged Sprint to focus more on improving the operations. After Forsee's departure, Sprint dropped plans 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 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 2006. The venture uses Sprint's network to sell wireless service.

To contact the reporters on this story: Crayton Harrison in Dallas at tharrison5@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net.

Last Updated: November 29, 2007 18:34 EST