Clearwire lays out its case for a Sprint buyout
Sprint Nextel’s network partner Clearwire hasn’t been able to find any other big wholesale customers nor sell any of its spectrum, so selling out to Sprint is the only real option for its shareholders, the company said Monday.
A letter sent to shareholders on Monday lays out several alternatives to Sprint buying the half of Clearwire it doesn’t already own and paints all of them as grim. The shareholders are scheduled to vote on May 21 on whether to accept $2.97 per share from Sprint, which is poised to finally absorb Clearwire after years of complicated relations with the company that supplied its first 4G network.
Sprint’s roughly $2.2 billion offer will depend on several “yes” votes from a majority of the company’s other shareholders. Some of those owners have objected to the proposal, saying Clearwire could get a higher price from another buyer.
Satellite TV operator Dish Network offered $3.30 per share for Clearwire in January before subsequently bidding$25.5 billion for Sprint. Clearwire has said Dish’s offer is under consideration by its Special Committee, a group of independent directors formed to study the company’s options.
Monday’s letter, signed by Chairman of the Board John Stanton, doesn’t refer to Dish’s offer by name, but it says the board’s unanimous conclusion in favor of Sprint’s deal was based on a unanimous recommendation by the Special Committee.
Clearwire operates the WiMax network that Sprint used for high-speed 4G service starting in 2008, before LTE became the mobile industry’s technology of choice for 4G. Sprint is now building out an LTE network but still relies on its wholesale deal with Clearwire to deliver WiMax to many of its customers. Clearwire plans to build its own LTE network, which would complement Sprint’s, but says it can’t afford to build that network in its current financial state.
The company needs $2 billion to $4 billion to continue operating and build its LTE system, and it’s unlikely to get that money without selling out to Sprint, according to Stanton.
“The proposed transaction with Sprint provides a clear solution to the substantial funding gap Clearwire is facing,” Stanton wrote.
The alternatives don’t look good, according to Stanton. Clearwire has talked to more than 100 potential customers and never found another major partner in addition to Sprint, he wrote. It also contacted 37 possible buyers for its excess spectrum in 2010 and came up empty-handed. Additional debt on top of its current load, for which it pays $510 million per year in interest, would come with unattractive terms.
Clearwire even considered declaring bankruptcy in late 2011, but it’s unlikely that auctioning off the whole company or its spectrum would bring as much money as Sprint is offering, Stanton wrote. On top of that, Sprint might claim damages that would cut into anything shareholders would get, he added.
Meanwhile, Clearwire effectively can’t sell out to anyone other than Sprint. “Clearwire would not be able to sell the whole Company as Sprint has stated that they are not willing sellers,” Stanton wrote.
What does purchase mean to Sprint?
Compared with Dish’s proposal, it’s easier to predict what a Sprint buyout will bring for Clearwire shareholders, Recon Analytics analyst Roger Entner said. That matters for a company that’s trying to keep running and set up a viable future for itself, he said.
“The Sprint offer gives a lot more certainty about the future,” Entner said. “With the Dish offer, there’s a lot more uncertainty around it, and for a company teetering on the going-concern edge, certainty is an important thing.”
Entner also believes Sprint shareholders ultimately will choose Softbank’s offer over Dish’s because of the debt that Dish would have to incur.