Is Sprint's $2.1B bid for Clearwire a bargain?
Sprint Nextel (NYSE:S) is flexing its new-found financial muscle (thanks to Softbank's $20.1 billion investment in Sprint) by making a $2.1 bid to purchase the remaining portion of Clearwire (NASDAQ:CLWR) that it does not already own. The deal will provide Sprint will a vast reserve of spectrum that it can use for its LTE deployment and allow it to clear up Clearwire's complicated ownership structure in which Sprint had majority ownership but not full control of the company.
But is Sprint's $2.1 billion offer a bargain? In November, Clearwire investor Mount Kellet Capital Management estimated that Clearwire's excess spectrum was worth about $0.38 per MHz POP and that the company could raise between $6 billion to $9 billion by selling excess spectrum that it didn't need for its operations.
Although it appears that Sprint's $2.1 billion bid may be lower than what investors such as Mount Kellet had valued Clearwire's spectrum, there has been some skepticism about that 2.5 GHz spectrum band, mostly because U.S. operators are building out LTE in other bands such as the 700 MHz or the AWS band. Nevertheless, Clearwire does hold significant spectrum in the 2.5 GHz band, including more than 160 MHz on average in the top 100 markets.
And any doubts about the viability of the 2.5 GHz spectrum band have been swayed recently as operators around the world have been designating the 2.5 GHz for their wireless broadband networks. Softbank is deploying TD-LTE in the 2.5 GHz band and China recently allocated 190 MHz of the 2.5 GHZ spectrum for TD-LTE.
Certainly financial analysts and investors have long been urging Sprint to buy Clearwire primarily because of concern that another suitor might snap up the company or its excess spectrum. Clearwire CEO Erik Prusch has maintained that the company would be willing to sell off some of its spectrum to boost its cash position and even hinted that it was talking with various potential buyers.
I'm not an expert on the value of spectrum. However, it appears that Sprint weighed its options and decided that it could no longer sit on the sidelines waiting to see what Clearwire's next move would be.
Instead, fresh off its $20.1 billion strategic investment from Softbank Japan (which is still awaiting approval), Sprint decided to pony up an offer for Clearwire before another company beat it to the punch. --Sue