Sprint's Clearwire offer gets conflicting reviews from shareholder advisory firms

Two leading shareholder advisory firms offered contrasting views on whether Clearwire (NASDAQ:CLWR) shareholders should approve Sprint Nextel's (NYSE:S) $2.97 per share offer, worth around $2.2 billion, to take control of the rest of Clearwire it does not already own. Shareholders are set to vote on the deal May 21.

One of the firms, Institutional Shareholder Services, said Clearwire shareholders should vote in favor of  Sprint's offer, saying the deal is of an appropriate value and that it should be approved given ongoing concerns about Clearwire's ability to survive as a standalone company. Meanwhile, adviser Glass Lewis & Co. said Sprint did not make a strong enough case for its bid and that Clearwire's board did not fully explore all of options before deciding to approve the Sprint deal in December.

The dueling views of the advisory firms come amid a backdrop of rancor between minority Clearwire shareholders that think Sprint's offer is undervalued, as well as Dish Network's (NASDAQ: DISH) unsolicited $3.30 per share conditional counterbid for Clearwire, which it has not formally withdrawn, despite its attempts to acquire Sprint for $25.5 billion.

While the opinions of advisory firms are not binding on shareholders, they can sway both investors and companies. After ISS and Glass, Lewis & Co., opposed Deutsche Telekom's offer in the merger between T-Mobile USA and MetroPCS to create T-Mobile US (NYSE:TMUS), DT improved the terms of its offer (the original proposal was also criticized by major MetroPCS shareholders).

In its report, ISS said that Sprint's offer falls within "an appropriate valuation range," and that it represents a substantial premium over where Clearwire's shares stood before the deal rumors started. ISS also said Clearwire's search for alternative deals "appears to have been both extensive and well-known in the industry" and noted that Sprint has "an effective veto over any other source" of funding.  "A vote for the proposed transaction is warranted in light of the valuation and market premium offered, amid an overarching context of significant questions about the company's continued viability as a stand-alone company," ISS said.

On the other hand, countered Glass, Lewis & Co., Sprint "failed to provide a clear and compelling case to suggest the existing offer, as currently structured, is the best possible alternative available." The firm said Clearwire's board did not explore all of its options given Dish's subsequent bid and Verizon Wireless' (NYSE:VZ) offer to purchase some of Clearwire's spectrum licenses.

"While there is no doubt Clearwire is in need of a significant capital injection and its stand-alone operating potential is heavily dependent on its ability to execute additional strategic transactions, including spectrum sales and debt or equity financings, it does not appear, in our view, that the board fully explored all available alternatives," Glass, Lewis & Co. said.

Sprint and Clearwire expressed disappointment at Glass, Lewis & Co.'s report but said they were pleased with ISS's conclusions. Clearwire said in a statement that it "strongly believes that Glass Lewis reached the wrong conclusion in failing to recommend that stockholders vote for the proposed Sprint transaction. The company believes that in its report, Glass Lewis failed to recognize the comprehensive process that led both the special committee and the entire board of directors to unanimously determine that the Sprint transaction is the best alternative for Clearwire's stockholders." 

"If you vote against the Clearwire deal, you are betting on someone else coming in with a higher bid," Stifel Nicolaus analyst Christopher King, told the Journal. "That is the game theory that people who vote against the Sprint transaction are playing."

Earlier this week in a letter to shareholders, Clearwire reiterated arguments it has been making for months, maintaining that Sprint's offer represents the last, best hope for the company to achieve financial salvation. Minority shareholders, including Mount Kellett Capital Management and Crest Financial, have urged shareholders to block the Sprint deal, arguing that it undervalues Clearwire and its spectrum resources. Crest filed a 40-page presentation with the Securities and Exchange Commission this week, detailing why it thinks the Spint deal undervalues Clearwire and its spectrum holdings.

Interestingly, SoftBank CEO Masayoshi Son told Dow Jones Newswires that Sprint likely would continue to fund Clearwire even if Clearwire shareholders reject Sprint's bid. If that were to happen, Sprint would still be able to own around 67 percent of the company because Comcast, Intel and Bright House Networks have agreed to sell their collective 13 percent voting stake in Clearwire to Sprint. If that sale goes through, Son has said it would give Sprint the ability to block third parties from acquiring Clearwire. SoftBank is in the process of trying to acquire 70 percent of Sprint for $20.1 billion.

For more:
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Dow Jones Newswires article

Related Articles:
Clearwire urges shareholders to approve Sprint's buyout offer
SoftBank CEO sees no need for Sprint to raise Clearwire offer
Clearwire confirms Verizon bid for spectrum, still aims for Sprint deal
Report: Verizon wants to obtain Clearwire's spectrum
Clearwire shareholder Crest wages proxy fight to block Sprint deal
SoftBank CEO won't raise Sprint offer, claims it's already better than Dish's bid

Article updated May 10 with comment from Clearwire.