Softbank doesn't rule out possibility of a MetroPCS deal

Clearwire's status remains in flux as deals swirl
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Softbank CEO Masayoshi Son, having engineered a deal to buy 70 percent of Sprint Nextel (NYSE:S) for $20.1 billion, did not rule out going after MetroPCS (NYSE:PCS). Deutsche Telekom has agreed to conduct a reverse merger with MetroPCS in which its T-Mobile USA subsidiary will essentially acquire MetroPCS.

In an interview with the Wall Street Journal, Son did not rule out the possibility of a deal with MetroPCS. "We shouldn't rule out any opportunity or alternative," Son said.

Softbank plans to take control of Sprint by first acquiring $3 billion worth of bonds that will convert into Sprint stock as well as buying $5 billion in new Sprint stock. Softbank will then pay $12 billion to buy 55 percent of Sprint shareholders' existing stock. With that complicated deal churning in the background, neither Son nor Sprint CEO Dan Hesse ruled out using the increased financial firepower to make some other deals.

"Think of it almost as an insurance policy," Hesse told the Journal. "It's some money in the bank until the deal closes that, for some reason, if we wanted to do something we could."

However, any bid for MetroPCS would be complicated. Under the terms of its agreement with DT, MetroPCS cannot exit the deal even if a competing bid is made, unless its shareholders vote against DT. Before then, according to a recent New York Times report, only DT can call off the deal, even if MetroPCS' board recommends a higher bid.

Hesse and Son were making the rounds in New York yesterday to discuss their deal to reporters and investors alike, with Hesse saying the deal gives Sprint added flexibility to go after Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T). "It's been very tough sledding for us because we have been the poor kid on the block," Hesse told the NYT. "We have seen a number of opportunities pass us by over the years."

Hovering in the background though was Sprint's announcement that it will increase its ownership in Clearwire (NASDAQ:CLWR) from 48 percent to 50.8 percent by purchasing about $100 million worth of Clearwire stock from Eagle River Holdings, the investment firm owned by wireless pioneer Craig McCaw.

Interestingly, Hesse told the NYT that Sprint has made clear to other strategic Clearwire investors, including Comcast and Intel, that it would be interested in buying their stakes if they were willing to sell. The companies have 30 days to decide if they want to sell, the report said.

While Sprint will control seven members of Clearwire's 13-member board, the board seat held by Eagle River will be filled by Clearwire, not Sprint, adding another independent board member. Hesse said the Eagle River deal was not a condition of its deal with Softbank and that Sprint has no interest in changing Clearwire's governance. "Our interest is aligned with the public's," he said.

Sprint has held a majority stake in Clearwire before but in the past has not been able to control the company's board or change its strategic direction at will.

Many analysts think that Sprint is maneuvering to gain complete control of Clearwire's vast 2.5 GHz spectrum assets, which Clearwire plans to use to build a TD-LTE network next year. Softbank is using similar spectrum for its own TD-LTE network in Japan. 

"As we noted before, Sprint would be wise to take control of Clearwire sooner rather than later to accelerate deployment and prevent any interlopers rather than just building up extra insurance," wrote BTIG analyst Walter Piecyk. "Their purchase of Eagle River helps in a competitive bid for Clearwire, but a deal like that would have been difficult anyway given Sprint's existing board seats and the size of Clearwire. The reality is that if Verizon bid $6 for Clearwire and Clearwire's board of directors did not act in their fiduciary duty to accept the offer, it would end up in the courts. More importantly, according to Sprint CFO Joe Euteneuer, there does not appear to be a way for Sprint to block a spectrum sale by Clearwire to Dish or AT&T despite the incremental purchase of Eagle River."

For more:
- see this WSJ article (sub. req.)
- see this NYT article
- see this BTIG blog post (reg. req.)

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