Can Sprint's Bid to Buy Clearwire Fail?

Regarding Sprint Nextel's (NYSE: S  ) $2.2 billion proposed deal to buy Clearwire (UNKNOWN: CLWR.DL  ) , remember this old adage: Twixt cup and lip, there's plenty of slip. Just ask AT&T (NYSE: T  ) about its failed $39 billion takeover bid for T-Mobile USA.

What seemed like a pretty sure thing to AT&T -- even with its army of lawyers and lobbyists swarming Capitol Hill -- failed to clear regulatory vetting by the Federal Communications Commission, and even evoked an antitrust lawsuit from the Department of Justice.

The call to arms against that merger had to do with it creating an uber mobile carrier, surpassing Verizon in number of subscribers and leaving Sprint much much further behind. That AT&T-Rex of a company, it was felt, would have upset whatever balance of wireless competition there was left in the country.

Slip No. 1
Even though the buyout agreement Sprint made with its longtime WiMAX network provider Clearwire would not seem to raise the hackles of the regulatory bodies by creating a super-sized mobile operator in terms of customer numbers, it may do so by the sheer amount of wireless spectrum it would put under Sprint's command.

According to a Citibank study, in 2010 Clearwire had 133 MHz worth of spectrum licenses under its mattress and Sprint had 51 MHz worth. That 184 MHz total is more than Verizon and AT&T have combined. If the AT&T merger with T-Mobile had gone through, their total would have only been 125 MHz.

The founder of Recon Analytics, Roger Entner, wrote that Sprint's and Clearwire's combined spectrum would, if approved, account for one-third of the amount of usable broadband spectrum licensed by the government. With roughly half the amount of subscribers of either AT&T or Verizon, that would give the new Sprint a huge potential capacity and speed advantage once its network infrastructure is built out.

Slip No. 2
Despite the seeming advantages for Sprint in buying out Clearwire -- and the boards of both companies voted unanimously for the agreement -- some Clearwire investors clearly don't like it.

Earlier this month, when it seemed likely that Sprint would make a bid to buy outright control of Clearwire, one of Clearwire's largest shareholders filed a lawsuit in Delaware to stop any such deal. Texas investment company Crest Financial, which owns 8.3% of Clearwire, says selling off the company's large trove of spectrum would reap much more for its shareholders than a sale to Sprint.

"Rather than permitting Clearwire to operate as an independent company or conducting a fair process to sell either Clearwire or its assets for the benefit of all Clearwire stockholders," the lawsuit alleges, "Sprint ... launched a scheme to deliver unilateral control of Clearwire and its spectrum assets to SoftBank on the cheap, while extracting maximum benefit for itself."

SoftBank is the Japanese mobile operator in the process of buying 70% control of Sprint and whose cash infusion of $8 billion to Sprint has made possible the bid to buy Clearwire.

Crest has company in its opposition to the Sprint Clearwire deal. Mount Kellett Capital Management, holder of 7.3% of Clearwire shares, sensing Sprint's move, sent a letter to Clearwire's board of directors last November expressing his belief that "Clearwire's stock [is] substantially undervalued," and estimated that selling its excess spectrum could "generate gross proceeds of $6-$9 billion." The $2.97 a share Sprint is paying for full control of Clearwire works out to $2.2 billion. Current market capitalization for Clearwire is $4.2 billion.

For the deal to go through, Sprint needs support from shareholders adding up to 24.8%. It currently has 13%. So even though this merger would seem to be a no-brainer for Sprint shareholders, they shouldn't count their MHz just yet.

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Read/Post Comments (8) | Recommend This Article (5)

Comments from our Foolish Readers

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  • Report this Comment On December 22, 2012, at 12:31 AM, ddeleo wrote:

    Because of SPRINT's contract with Clearwire, SPRINT is locked in already for $2 billion over the next two years. So Clearwire already had the $2 billion from SPRINT without losing their spectrum. But apparently an extra $200 million is all it takes to own 130 mhz of spectrum from Clearwire.

  • Report this Comment On December 22, 2012, at 5:12 PM, lee16000 wrote:

    . The fact of the matter is….i, like many minority shareholders,

    paid a premium price for Clearwire. I personally paid $7.70 per share 2 years ago because Clearwire’s

    CEO and CFO continually said that the spectrum was worth about 20B on the low end. The price Sprint

    is offering is much too low. Imagine what Verizon would pay for Clearwire’s spectrum. Sprint did everything

    it could to devalue Clearwire. I hope a mega company will step in and stop this theft…..because this

    spectrum is very valuable and Sprint is trying to get it for peanuts at the expense of investors like me.

  • Report this Comment On December 22, 2012, at 8:28 PM, frozintime wrote:

    For them to do a complete about face on their own valuations is #1 cause for major concern. The easily seen through list of poor excuses, plus the BS excuse of "its more valuable as one contiguous spectrum", when I am sure they will either voluntarily, or be forced to break it up. They will benefit unfairly on my back since they never even tried to sell a portion of the spectrum. I also paid 7 and change for my first shares about 2 1/2 years ago and have kept cost averaging, otherwise I would also be taking a serious beating. My own personal valuations have this valued at a conservative 8.50 per share. There has to be more than meets the eye here, as it makes no sense how this whole transaction has transpired.

  • Report this Comment On December 23, 2012, at 3:18 PM, spokanimal wrote:

    Clearwire was a "major" objective of Softbank's Mr. Son.

    Softbank's financier would not support softbank's bid for sprint unless it was clear that sprint had de-facto control of clearwire and clearwire could NOT be acquired out from under softbank.

    Softbank is building it's wireless data network in Japan using the exact same frequencies (2.5 ghz) and protocol (TD-LTE) as clearwire uses. Clearwire is ESSENTIAL to Softbank's grand plan.

    I urge ALL clearwire shareholders to reject sprint's ridiculous $2.97 offer for your clearwire shares...

    ... because it is CERTAIN that Softbank will instruct sprint to raise the bid if they can't tender enough shares.

    Mr. Son will NOT walk away from this. Mr. Son knows that even at $5 a share, Clearwire's assets are the bargain of the century and exactly what he needs to dominate wireless in America.

    Do NOT tender your shares to this rip-off.

    Spokanimal

  • Report this Comment On December 23, 2012, at 3:42 PM, Brettze wrote:

    Intel owns 17%, Comcast owns 15%, Time Warner Cable owns 8-9%, FMR (Fidelity mutual funds) owns 15%, Chesapeake Partners owns 5% ,of Clearwire and they hardly made any stir about it... They probably dont care ! Duh?

  • Report this Comment On December 23, 2012, at 3:46 PM, Brettze wrote:

    ATT sold a huge spectrum to Clearwire in 2007 before Clearwire joined Sprint to form the biggest spectrum in town.. Why ATT sold it , you tell me.. ?

    Duh?

    Too much bother?

  • Report this Comment On December 23, 2012, at 3:50 PM, Brettze wrote:

    Spectrum doesnt matter as long as you keep on adding more towers closer and closer to fewer and fewer people around them. it is no different than wifi hotspots... Soon enough , towers will be as common as telephone poles!!

  • Report this Comment On December 24, 2012, at 3:37 PM, nivegulu wrote:

    Son's trick was to undervalue CLWR's spectrum assets by 90% to make it look like he was not after CLWR after all and it was just an after thought based on the necessity of Sprint's Network Vision. Therefore with the collusion of McCaw & the CLWR BOD he did just that - so nobody can/could object after the fait accompli i.e. that he practically owns/would the entire swath (monoply) of hi-speed spectrum in the U.S. Ergo, the low benchmark value of the spectrum assets and ripping off of the minority institutional + common class A. But if his claim was really true, then how come McCaw's class B were priced at $13.98 pps - it's a dead giveaway. Hesse also made some public statements prior to all of this that said something like "we're not interested in clearwire" & "we would'nt want their debt on our books" etc. - and then came the - the taking of spectrum 1..2..$3. Go figure!.

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