Sprint Nextel Corp. (S), which agreed to sell a 70 percent stake to Softbank Corp. (9984) for $20.1 billion, has no immediate plans to take over Clearwire Corp. (CLWR), said people with direct knowledge of the situation.
Softbank’s and Sprint’s priority is to close the deal they announced yesterday, which will take six to eight months, said the people, who asked not to be identified because the information is private. Until the deal is completed, the companies can’t engage in extraordinary activities such as further acquisitions unless Softbank agrees, these people said.
Softbank is prevented from doing further deals under its banks’ covenants during that time, while Sprint is prohibited from doing so under the merger contract, said one of the people. Clearwire shares fell 17 percent today after doubling in the prior three trading days on speculation of an imminent takeover.
While a decision hasn’t been made, Sprint doesn’t need to own Clearwire because it already has access to its spectrum and it’s too expensive, said two of the people.
“Sprint doesn’t need to own Clearwire now, as they already paid $900 million to lease the spectrum they need for 2012 and 2013,” said Robert Chapman, founder of hedge fund Chapman Capital LLC. “Sprint may be better off buying 700 megahertz spectrum.” Chapman is “short” on Clearwire, meaning the firm will profit if Clearwire’s shares fall.
Scott Sloat, a spokesman for Sprint, wasn’t available for comment. A spokesman for Softbank declined to comment. Mike DiGioia, a spokesman for Clearwire, declined to comment.
“I don’t talk about any specific detail of our strategy. I never do that in advance,” Softbank President Masayoshi Son said in a conference call, answering an analyst’s question about a potential deal with Clearwire. Sprint holds 48 percent of Bellevue, Washington-based Clearwire and has an equal percentage of voting power, Clearwire said Oct. 11.
Softbank will pay $12.1 billion to Sprint shareholders and the deal includes $8 billion of new capital, according to a statement yesterday. The transaction will help billionaire Masayoshi Son’s Softbank enter the U.S., a market that’s still growing in contrast to Japan, where handset shipments tumbled 27 percent Japan over the past five years.
Softbank will form a new U.S. subsidiary that will invest $3.1 billion in a newly issued Sprint convertible senior bond, the companies said in the statement. Immediately prior to the merger’s closing, the bond will be converted into Sprint common stock at $5.25 per share.
With the imminent capital injection, Sprint will be able to fund both its short-term capital needs, such as paying down debt, and a faster expansion of its 4G wireless network, said the people with knowledge of the matter. Sprint has more than $4 billion coming due in 2013, according to data compiled by Bloomberg.
The combined entity of Sprint and Softbank will create the world’s third-largest mobile-phone services provider by revenue, Son said, and have 96 million users after the transaction.
At that point, Sprint may consider other acquisitions to challenge bigger competitors Verizon Wireless and AT&T Inc. (T), said the people. Sprint might also buy more spectrum in the imminent 700 megahertz auctions, one of the people said. Sprint may seek to later bid for Richardson, Texas-based MetroPCS Communications Inc. (PCS) or purchase the rest of Clearwire, people familiar with the matter have said.
“We will use those proceeds in whatever ways we think will maximize shareholder value,” Sprint Chief Executive Officer Dan Hesse said on the conference call. “It could be internal investments, external investments. It could possibly be to retire debt and reduce our interest expenses. There are a variety of ways that it could be put to use, and we’ll make those decisions at a later time.”
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