Shares of wireless network operator Clearwire (NASDAQ: CLWR ) are soaring today. The stock jumped sky-high as largest shareholder and customer Sprint Nextel (NYSE: S ) offered to buy the rest of Clearwire, too.
Clearwire's high-speed data service is an important part of Sprint's business, particularly now that the proposed satellite-and-tower alternative from Phil Falcone's LightSquared died in regulatory reviews.
Sprint currently owns about 48% of Clearwire and calls it "a non-controlling economic interest." Given Clearwire's strategic importance to Sprint, something had to be done. "We do not control Clearwire's board, nor do we manage the operations of Clearwire or control management," says Sprint's latest 10-K filing. "Clearwire has a group of investors that are represented on Clearwire's board of directors. These investors may have interests that diverge from ours or Clearwire's."
Sprint is doing something about this lack of direct control. The company will shell out $2.1 billion to complete the deal, building on its existing $1.9 billion stake. The deal is contingent on Japanese peer SoftBank closing its own merger with Sprint, because that move will provide the cash needed for completing the Clearwire move. Things can get complicated in the rapidly changing wireless world.
What's the problem, then?
So far, so good. Clearwire's shares jumped as much as 16.3% on the news, topping out at $3.20 per share. Even now, the stock trades at roughly $3.06. And that's why I'm telling you to stay away from the stock today.
Sprint's bid is just $2.90 per share, so Clearwire investors seem to be holding out for a richer bid. But that's not going to happen. No way, no how.
Sector giants Verizon (NYSE: VZ ) and AT&T (NYSE: T ) could afford to make a larger bid, but they don't have any need for Clearwire's services and regulators would do the Macarena on the grave of a deal proposal like that. Smaller rivals T-Mobile USA and MetroPCS (NYSE: TMUS ) are too busy completing their own pending merger to worry about adding anything else. Plus, Sprint is the only American network that actually uses Clearwire's WiMax networking technology.
What about pushing Sprint itself to sweeten the deal? With this industry backdrop, Clearwire has absolutely no leverage for that dream. As Stifel Nicolaus analyst Christopher King tells Bloomberg, "It's Sprint or nobody. At the end of the day, Clearwire's worth what Sprint's willing to pay for it."
What to do now
So if you already own Clearwire, I'd cash in on the overheated pricing while you can. Congratulations!
Otherwise, don't touch the stock. This paper will settle on exactly $2.90 when all is said and done, and there's nothing you can do about it.
SoftBank leader Masayoshi Son has some iconoclastic ideas on how to run a wireless service. Under his wing, a Clearwire-infused Sprint will turn this industry upside down.
I'm ending my bearish CAPScall on Clearwire today, but also starting a bullish CAPScall on Sprint. The puzzle pieces are coming together for the nation's third-largest wireless operator, and I can't wait to see what this company -- and stock -- will do in the next three or four years.
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