Sprint: Despite majority stake, we don't control Clearwire

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Sprint Nextel (NYSE:S) wants to make it absolutely clear: Even though it once again holds a majority stake in Clearwire (NASDAQ:CLWR), it does not control the company.

A flurry of reports suggested last week that Sprint had moved to wrest control of Clearwire's operations, but Sprint said that's not case. Under Sprint's agreement with Clearwire, Sprint increased its ownership in the company 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.

"While we have a majority stake, we do not have control of the company, and their finances are not consolidated with Sprint's," Sprint spokeswoman Melinda Tiemeyer told the Kansas City Business Journal. "They are an independent company with independent management and board. This is (the) same as when we previously owned more than 50 percent."

Indeed, Sprint once held a 54 percent stake in Clearwire but did not have control over its board or strategic direction. In June Sprint had reduced its economic stake in Clearwire, in line with moving its voting interest below 50 percent, which was seen as a way to protect its balance sheet and clear the air with investors over potentially being held liable should Clearwire have defaulted on its debt obligations.

Speculation has increased that Sprint will move to take control of Clearwire now that Softbank has agreed to buy 70 percent of Sprint for $20.1 billion. Sprint and Softbank have said a change in Clearwire's governance is not a condition of their deal. The thinking is that Sprint would like to directly control Clearwire's vast 2.5 GHz spectrum holdings, which Clearwire plans to use for its TD-LTE network. Sprint currently resells Clearwire's WiMAX service and plans to use Clearwire's TD-LTE network when it launches.

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. Interestingly though, Sprint CEO Dan Hesse told the New York Times 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.

Analysts continue to speculate about what this ultimately means for Clearwire. "We think it is not possible to make an informed projection of which precise path a Softbank-controlled Sprint would take with regard to 4G resources, but believe an outright acquisition of assets is the preferred path vs. a partnership, especially given the company's choppy experience with partnerships (e.g., with regional affiliates, cable JVs, and Clearwire)," RBC Capital Markets analysts Jonathan Atkin and Brian Hyun wrote in a research note.

"Strategically, we would view an acquisition of Clearwire by Sprint that gives the company operating control as a positive event," Fitch Ratings said in a note on Friday. "This would allow Sprint to fully integrate those assets into its network, thus eliminating operating expenses, control spectrum resources longer term, and facilitate execution of its strategic plans."

For more:
- see this Kansas City Business Journal article
- see this WSJ article (sub. req.)

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