Sprint Nextel (NYSE:S) is reportedly in active discussions to purchase the 49 percent of Clearwire (NASDAQ:CLWR) that it doesn't already own, according to media reports. The transaction could be finalized by the end of this year.
CNBC, citing two people familiar with the situation, reported that Sprint is investigating the purchase. Separately, the Wall Street Journal and Bloomberg, also citing unnamed sources, later reported the same thing. Both CNBC and the Journal noted that Sprint executives are talking to Clearwire shareholders such as Intel and Comcast, but that it's unclear what Sprint would pay to acquire Clearwire's outstanding shares. Clearwire currently commands a market value of $1.8 billion and holds around $5 billion in debt.
Sprint and Clearwire declined to comment, according to Bloomberg.
Sprint's potential purchase of Clearwire is complicated by--and made possible through--Softbank's proposal to purchase 70 percent of Sprint for $20.1 billion. Softbank's finances would give Sprint the financial cushion it needs to swallow Clearwire, but Softbank's purchase of Sprint has not yet been approved by regulators. CNBC reported that Sprint is hoping to close both the Softbank and Clearwire deals simultaneously by March or April of next year.
Purchasing Clearwire would give Sprint directly control over Clearwire's vast spectrum holdings in 2.5 GHz. 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 buildout, Sprint sold smartphones that worked on Clearwire's WiMAX network, and Sprint will continue to support WiMAX devices through 2015.
Analysts appeared generally positive on the possibility.
"While a purchase of Clearwire would bring "baggage" (including $4.2 billion in debt, operating losses, and a wireless network that has "issues"), buying out Clearwire is the right thing to do," wrote Credit Suisse analyst Stefan Anninger. "Sprint needs more spectrum in order to launch a robust LTE network and to offer the services and packages that the company (driven by future owners Softbank and Masayoshi Son) intends to use to grow its business. Until it gets its hands on broadcast TV spectrum (which could take 3-5 years), Sprint has few attractive spectrum options beyond Clearwire."
"Sprint could deploy 40 MHz TD-LTE channels or 20x20 FD-LTE channels using Clearwire's spectrum giving them both a considerable network speed and capacity advantage over all the other carriers," wrote New Street Research analyst Jonathan Chaplin. "Sprint could use this capacity to offer pricing and products that other carriers would have a hard time competing with. In addition, following the initial deployment, the spectrum should pave the way for lower long-term capex (less spending on capacity). The asset would be even more valuable if Sprint acquires MetroPCS / T-Mobile (as we expect them to)."
Sprint has already made moves toward Clearwire; in October Sprint moved to increase 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.
If Sprint does announce a deal to purchase Clearwire, the transaction likely would receive a careful regulatory review.
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Article updated Dec. 12 with additional analyst commentary.