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Sprint Purchases Remaining Half of Clearwire

December 17, 2012

Sprint announced today that it has acquired the 50 percent stake in Clearwire it does not currently own for $2.97 per share, equating to a total payment to Clearwire shareholders, other than Sprint, of $2.2 billion.

Currently, Clearwire has more than 16,000 WiMAX sites on the air nationwide. Recently, Sprint and Clearwire have been discussing rolling out LTE to 5,000 Clearwire sites by June 2013, followed shortly by 3,000 more sites, according to Erik Prusch, Clearwire president and CEO, an a Seeking Alpha transcript of the company’s fourth quarter earnings call.

“Because we have chosen an overlay strategy for our LTE build, we expect the first 5,000 LTE sites to have substantially less leasing, permitting and construction requirements than the original WiMAX build and as a result, we expect this approach will save us both money and time,” Prusch said.

This transaction results in a total Clearwire enterprise value of approximately $10 billion, including net debt and spectrum lease obligations of $5.5 billion. The final purchase price was up from the amount offered last week, $2.1 billion, which was seen as too low by analysts.

The purchase price represents a 128 percent premium to Clearwire’s closing share price the day before the Sprint-SoftBank discussions were first confirmed in the marketplace on Oct. 11, with Clearwire speculated to be a part of that transaction; and, a 40 percent premium to the closing price the day before receipt of Sprint’s initial $2.60 per share non-binding indication of interest on Nov. 21.

Sprint officials said Clearwire’s spectrum will strengthen its position and increase competitiveness in the market. Sprint’s Network Vision architecture should allow for better strategic alignment and the full utilization and integration of Clearwire’s complementary 2.5 GHz spectrum assets, the company added.

“Sprint is uniquely positioned to maximize the value of Clearwire’s spectrum and efficiently deploy it to increase Sprint’s network capacity. Sprint CEO Dan Hesse said in a prepared release. “We believe this transaction, particularly when leveraged with our SoftBank relationship, is further validation of our strategy and allows Sprint to control its network destiny.”

Last week, the Board of Directors of Sprint authorized its management to proceed with merger talks with Clearwire, according to a filing with the Securities and Exchange Commission.

“Purchasing Clearwire does make sense as it will give Sprint access to Clearwire’s vast swathe of 2 GHz spectrum,” according to Trefis, a stock research firm. “But considering that the government’s TV spectrum auctions are at least three years away and Sprint now has the financial cushion of Softbank to make this aggressive move, Clearwire’s spectrum does seem like a very attractive option … to build out a robust LTE network … and compete more effectively with Verizon and AT&T.”

Clearwire now holds more than 9,000 –  2.5 GHz licenses and leases with coverage in 411 of the 493 basic market areas in the United State. It claims deep spectrum holdings, with an average of 120 MHz – 150 MHz across its geographic market holdings, however these holdings vary significantly across markets, according to Tolaga Research.

“While it’s not the most attractive spectrum out there, the incremental purchase price (above what Sprint already owns) is very attractive and affords Sprint great flexibility in the future,” wrote Christopher Larsen, Piper Jaffray & Co.

Clearwire was formed by Sprint in 2008 in a joint venture that included $3.2 billion in investments from Intel, Google, Comcast and Time Warner Cable.

“The idea was to build a high-speed wireless network that would shake up the telecommunications industry and allow for a wave of new applications and devices. Clearwire never lived up to its original ambitions, and the costs of the project led to billions of dollars in losses. Along the way, partners such as Google and Time Warner Cable sold their stakes for a fraction of their original value,” wrote Cornelius Rahn and Scott Moritz of Bloomberg.

Some analysts said the deal was inevitable, because Clearwire is weighed down with $4.2 billion in debt it hasn’t any better options.

“Sprint, nevertheless, retains the upper hand. Clearwire’s operating loss for the first nine months of the year exceeded $1 billion. While heavily indebted, Clearwire also desperately needs to roll out its next generation cellular network to keep up with rivals. That means its financial position is grim and getting worse,” wrote Robert Cyran, columnist, Reuters Breakingviews.

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