Analysts: Sprint may need to pay more for Clearwire, but deal is worth the pricetag

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Investors and financial analysts generally agree that Sprint Nextel (NYSE:S) will need to increase its $2.90 per share offer, or $2.1 billion, to buy the 49 percent of Clearwire (NASDAQ:CLWR) that it doesn't already own. Yet many analysts think Sprint will ultimately seal the deal because Clearwire's vast spectrum holdings are too valuable to leave on the table.

Indeed, investors already seem to be betting that a richer offer will come, pushing Clearwire's shares up nearly 15 percent to $3.16. Complicating matters though, Reuters reported that Softbank, which is pursuing its own $20.1 billion deal to acquire 70 percent of Sprint and needs to sign off on any deal for Clearwire, may keep Sprint from bidding much higher.

According to the report, which cited unnamed sources familiar with the matter, Softbank has told Sprint that it will not agree to any Clearwire bid higher than $2.97 per share. That is the price Sprint paid in October to buy a small stake in Clearwire from wireless pioneer Craig McCaw's Eagle River Holdings. Sprint, Clearwire and Softbank declined to comment on the details of the discussions, Reuters said.

Meanwhile, Clearwire investor Crest Financial filed a lawsuit to stop the deal, arguing Clearwire would be abdicating its fiduciary duties by allowing Sprint to "extract the value of Clearwire's high-speed, broadband spectrum to the detriment of Clearwire's minority shareholders." Another minority shareholder, Mount Kellett Capital Management, said that Sprint's $2.90 per share offer is "grossly undervalued."

"There is no rush for the company to sell itself at a deeply discounted price," Mount Kellett said in an open letter to Clearwire.

"This likely will get somewhat messy and much news flow will come," wrote Wells Fargo Securities analyst Jennifer Fritzsche in a research note, according to MarketWatch. Fritzsche predicted Clearwire's minority shareholders will fight for a higher price.

BTIG analyst Walter Piecyk said Sprint will need to offer at least $5 per share to get enough Clearwire shareholders on board. A deal with Clearwire valued at $5 per share would amount to $3.7 billion.

Yet many analysts believe Sprint and Clearwire will complete the deal. "With a bid on the table that's nearly three times where the stock was trading this summer, Clearwire's non-Sprint owners can't easily dismiss it," Robert Cyran wrote for Reuters Breakingviews. "They can fight, but won't get anything close to quadruple what has been put forward. They are, however, just enough of a nuisance that it'll probably cost Sprint a little more to seal the deal."

If the deal is consummated and approved by regulators--as many expect--Sprint will gain access to Clearwire's 2.5 GHz spectrum holdings, which provide an average of 160 MHz in the top 100 markets. Sprint was already planning to offload LTE traffic onto Clearwire's planned TD-LTE network next year in urban markets. Now, with $8 billion in fresh capital from Softbank (part of Softbank's $20.1 billion proposal to buy 70 percent of Sprint), Sprint has the potential to build out a 2.5 GHz TD-LTE network more broadly and rapidly than Clearwire had planned to do.

Indeed, Sprint could be positioned to make Clearwire's high-speed mobile broadband promises a reality. Clearwire executives have previously discussed how the carrier could use LTE Advanced carrier aggregation technology to launch a network with 40 MHz-wide spectrum channels--channels that would be twice as wide (2x10 MHz--i.e. 20 MHz) as the FDD LTE channels being deployed by Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T). Clearwire said tests of such a configuration in 2010 resulted in speeds of up to 70 Mbps.

Clearwire's spectrum "would be a pretty significant addition to its (Sprint's) overall bandwidth," IDC analyst John Byrne told FierceWireless. "There are a lot of things they can do with 40 MHz of spectrum in a lot of large, urban markets."

Byrne said that, with the resulting capacity the extra spectrum would provide, Sprint could continue to differentiate itself for years by offering high-speed unlimited LTE service while other carriers are moving away from it.

For more:
- see this Reuters article
- see this separate Reuters article
- see this BTIG blog post (reg. req.)
- see this NYT post
- see this WSJ article (sub. req.)
- see this MarketWatch article
- see this The Street article

Related Articles:
Sprint makes $2.1B offer to buy Clearwire
Sprint reportedly in talks to buy Clearwire
Clearwire and Sprint: Still the same old song and dance
Investor: Clearwire should sell excess spectrum for $9B
Sprint: Despite majority stake, we don't control Clearwire
Softbank to buy 70% of Sprint for $20.1B
Clearwire to begin testing LTE, promises speeds of 20-70 Mbps

Article updated Dec. 14 with additional information from Reuters.