Sprint makes $2.1B offer to buy Clearwire

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Sprint Nextel (NYSE:S) has made a $2.1 billion offer to buy the 49 percent of Clearwire (NASDAQ:CLWR) that it doesn't already own, according to a regulatory filing. The deal, if approved, would put an end to the complicated relationship between the two companies and give Sprint vastly larger spectrum resources.

According to the Securities and Exchange Commission filing, Sprint is offering $2.90 per share, which represents a 5.5 percent premium to yesterday's closing price of Clearwire's shares. Sprint's board approved the deal yesterday and a special committee of Clearwire's board is reviewing the proposed transaction.

The Clearwire purchase, which has been rumored in recent days, is the first significant step Sprint has taken to strengthen its position in the U.S. market since Softbank announced in October its intention to buy 70 percent of Sprint for $20.1 billion. That deal, which needs to be approved by regulators and is expected to close by mid-2013, will give Sprint $8 billion in capital.

As part of Sprint's deal to acquire Clearwire, Sprint would provide Clearwire with $800 million to keep it afloat until the agreement closes. Sprint said in its filing that it will need approval from Softbank for the Clearwire transaction and that the Softbank deal needs to close before the Clearwire agreement can be finalized.

"Clearwire does not comment on ongoing negotiations with counterparties and, under the direction of the Special Committee, continues to be in discussions with Sprint to explore a transaction," Clearwire said in its own regulatory filing. "There can be no assurance as to the terms of any potential transaction or that any transaction will result." 

Sprint is Clearwire's largest shareholder and by far its largest wholesale customer, yet it does not completely control Clearwire's board or strategic direction. The deal would allow Sprint to completely oversee Clearwire's TD-LTE network deployment, set for next year.

Many analysts and observers predicted Sprint would buy Clearwire following Softbank's announcement to purchase 70 percent of Sprint. Both Clearwire and Softbank are using 2.5 GHz spectrum for TD-LTE and Softbank CEO Masayoshi Son has spoken highly of Clearwire's spectrum reserves.

Clearwire has around 160 MHz of spectrum on average in the top 100 markets. Sprint and Clearwire already have an agreement whereby Sprint will offload traffic to Clearwire's planned TD-LTE network starting next year. Before embarking on its own LTE deployment, Sprint sold smartphones that worked on Clearwire's WiMAX network, and Sprint will continue to support WiMAX devices through 2015.

In October Sprint increased its ownership in Clearwire 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.

BTIG analyst Walter Piecyk told FierceWireless that he does not think Clearwire's board or shareholders will accept Sprint's offer of $2.90 per share. "It's up to Sprint whether they're going to be willing to spend more," he said. "In our view it's going to take $5 a share in order to get shareholder approval."

Piecyk noted that if Sprint were to buy Clearwire it would also take on around $4.2 billion in debt. Yet he noted that Softbank's Son likely made acquiring Clearwire a major part of his deal for Sprint. In the long run, Piecyk said, Sprint buying Clearwire makes strategic sense, since it will give Sprint much more spectrum for LTE.

"If you take Sprint's network, Softbank's cash and Clearwire's spectrum, you have a network that can offer the fastest speeds to U.S. consumers and have enough capacity to be able to price it at a very aggressive rate," he said.

New Street Telecom analyst Jonathan Chaplin wrote in a research note that Sprint will still need support from some large public shareholders to get the deal approved at Sprint's current price. He noted that "we would be surprised if large Clearwire holders are willing to sell at this price."

"Looking at Clearwire's holders list, if Sprint can secure the support of large mutual funds that typically do not take activist positions, they should be able to secure enough votes, but it is by no means a 'slam-dunk,'" he wrote. "The large public shareholders that we believe will push aggressively for a higher price may not have a blocking position--but they are close. This will come down to the desire of mutual funds to get this over and done with once and for all vs. their desire to drag this out to maximize value."

For more:
- see this Sprint SEC filing
- see this Clearwire SEC filing
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article
- see this separate Reuters article
- see this BTIG blog post (reg. req.)

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