Don't Touch Clearwire Today!

Shares of wireless network operator Clearwire (UNKNOWN: CLWR.DL  ) 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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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 13, 2012, at 11:47 AM, lbtoolman wrote:

    Another rediculous Fool hit piece on CLWR. Dude you have no clue!

  • Report this Comment On December 13, 2012, at 1:01 PM, Aryabod wrote:

    @Anders, brilliant prognostication. I too have to the same conclusion. It is time to dump the shares with a nice capital gain, especially when every other alternative is substantially worse. Clearwire's partners, Google, Intel, Comcast, TWC and Brighthouse Networks, have all bailed leaving Sprint with few choices.

    Sprint approached TMobile share in the buildout of Clearwire's network, however to no avail. Owing to this their next best option was Lightsquared, however that too came to no fruition.

    Since Sprint has exhausted every nook and crevice, it came to the conclusion that on its own it would be too risky to take on Clearwire's buildout on its own. This is why Softbank ended up being Sprint's 'White Knight.' Mr. Son's SFTBY has done well with similar spectrum (2.5 Ghz) in Japan and can manifest this with SFTBY's earnings (ARPU) and subscriber growth in Japan. With the sufficient wherewithal and low interest rates available to Mr. Son's SFTBY and sufficient spectrum from Clearwire the sky is the limit for Sprint.

    Sprint's current financial status is pretty impressive:

    $8 billion in Cash and a LOC

    $8 billion to be infused by SFTBY ($3B already given)

    Within 6 months S will have closed down Nextel, truncating 30K unnecessary towers, saving it $1.5 to $2 Billion annually. Within 12 months S will have 250 million POPS of LTE up and running. Add Clearwire under their control and what you have is a four bagger in the next 3 to 4 years.

    The only obstacle is the FCC and DOJ, however I don't see any good reasoning that could stoke this from happening.

    The Lawsuits have no merit!

  • Report this Comment On December 13, 2012, at 1:03 PM, cjmac136 wrote:

    Why do the guys that don't know their backside from a hole in the ground seem to show up at a buyout period. I will address just one paragraph of you drivel and ask you refrain from additional comments until you are informed.

    Verizon and AT&T are in no way precluded from making a better offer. Although they don't need the modern 4G network Clearwire has and which can easily be transitioned to LTE primarily through software upgrades, they could never the less use that network in major metro areas where they are now already capacity constrained and cannot offer unlimited data plans. Additionally, Clearwire holds control of enough spectrum, that either of the two monopoly twines would essentially double their spectrum position while not running afoul of regulators, as transferable leased spectrum does not fall under FCC cap scrutiny. You may need reminded that AT&T offered to purchase T-Mobile for $38B, for the expressed reason of needing additional spectrum AND that spectrum would have been more difficult for them to use because of its characteristics than the 49% of Clearwires spectrum they could purchase at half the price. You are also incorrect about Sprint being the only operator to use Clearwire's WiMax network, as a number of smaller operators have reached agreement with Clearwire including the founder of Skype who just began offering free 4G internet (which WiMax is) through his FreedomPop company(they will transition to LTE as the WiMax network receives its software updates).

    This is a very poorly written piece.

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