Clearwire Mount Kellett Investor Spurns Sprint Offer

Clearwire Corp. (CLWR) investor Mount Kellett Capital Management LP said Sprint Nextel Corp. (S)’s $2.90- a-share offer to buy out the wireless-network company “grossly” undervalues its assets, including its airwaves.

Clearwire’s unused spectrum, which can be used to offer wireless phone and Internet service, is worth about $6 billion to $9 billion alone, Mount Kellett said today in a statement. The firm said it owns about 3.6 percent of Clearwire’s outstanding stock, which it considers to be worth $6.30 a share.

“Mount Kellett acquired the shares for investment purposes because we considered, and continue to consider, Clearwire’s stock to be substantially undervalued,” the investment firm said. “The company has significant upside potential as a wireless broadband network operator given its spectrum holdings and the growth in high-speed wireless demand in the U.S.”

Softbank Corp. (9984), which is investing in Sprint in a separate transaction, also is involved in the Clearwire discussions. Sprint isn’t willing to increase the offer more than a small amount, two people familiar with the negotiations said. Softbank won’t agree to a bid above $2.97 a share, said one of the people, who asked not to be named because the talks are private. That was the price Sprint paid for Clearwire shares from telecommunications pioneer Craig McCaw in a transaction completed this week.

Nationwide Network

Sprint teamed up with Clearwire four years ago, aiming to build a nationwide network that could compete with Verizon Wireless and AT&T Inc. (T) Clearwire struggled to build out the system and lost billions of dollars along the way, prompting Sprint to give up on the joint venture. It now looks to use Clearwire’s spectrum to help bolster its own network.

Sprint, which already owns more than 50 percent of Clearwire, announced plans to acquire the remaining shares yesterday in a deal worth $2.1 billion. Clearwire has a total market value of about $4.6 billion. Sprint also offered to provide the company with $800 million in financing.

Clearwire shares rose 6.7 percent to $3.37 at the close in New York trading. The stock had jumped 15 percent to $3.16 yesterday after Sprint’s offer was announced, suggesting that investors expect Sprint’s bid to go higher.

Walter Piecyk, an analyst at BTIG LLC in New York, has said that the offer may have to climb to more than $5 a share to win over the majority of non-Sprint investors.

Softbank Money

Sprint, the third-largest U.S. wireless carrier, is getting an influx of cash from Japan’s Softbank, which agreed in October to buy 70 percent of the company for about $20 billion. That’s giving it more money to make deals.

Sprint said yesterday that it will probably have to complete the Softbank deal before it can consummate the Clearwire transaction. That condition puts unnecessary risks on the deal and Clearwire’s shareholders, Mount Kellett said.

“If Sprint so wants to buy the company, it should put a fair proposal on the table when it is in fact able to consummate it,” the firm said in today’s statement.

When Sprint formed the Clearwire venture in 2008, it relied on $3.2 billion in investments from Google Inc. (GOOG), Intel Corp., and cable companies such as Comcast Corp. and Time Warner Cable Inc. As losses piled up, partners such as Google and Time Warner Cable (TWC) sold their stakes for a fraction of their original value.

Even so, Clearwire’s spectrum could fetch a much higher price, Mount Kellett said. Using AT&T’s acquisition of wireless company NextWave Wireless Inc. as a benchmark, Clearwire’s spectrum -- including its used and unused airwaves -- is worth as much as $18 billion, the firm said. Including debt, estimated taxes on a spectrum sale and other costs, Clearwire’s net value works out to $9.2 billion, Mount Kellett estimated.

Plunging Value

Clearwire, which peaked at $33.30 in July 2007, had slumped to as low as 90 cents earlier this year. The company is projected by analysts to post a record $1 billion net loss for 2012, according to data compiled by Bloomberg.

Sprint began closing in on Clearwire in October, when it offered to buy McCaw’s stake in the business. Sprint paid McCaw’s investment company, Eagle River Holdings LLC, about $100 million for 30.9 million Class A shares and 2.73 million Class B shares. Reuters was first to report that Softbank was using the $2.97-a-share Eagle River price as its cap in the latest Clearwire negotiations.

After Sprint completed that purchase this week, Clearwire shareholder Crest Financial Ltd. filed a complaint in Delaware Chancery Court in Wilmington accusing the parties of allowing Sprint to selectively gain from Clearwire’s spectrum value while minority shareholders couldn’t.

Damages Sought

Crest Financial, which said it owns 6.6 percent of Clearwire’s Class A shares, has been seeking to block the pending Softbank investment in Sprint and collect damages, according to a statement.

Crest Financial, based in Houston, said yesterday that it opposes the latest Sprint offer as well, calling it “the capstone in Sprint’s ongoing effort to interfere with Clearwire’s ability to operate as an independent company.”

With few signs that other buyers are interested in Clearwire, investors may have to settle for what Sprint offers, Christopher King, a Baltimore-based analyst at Stifel Financial Corp., said earlier this week.

“It’s Sprint or nobody,” he said. “They’re losing money hand over fist. They’re burning so much cash. At the end of the day, Clearwire’s worth what Sprint’s willing to pay for it.”

To contact the reporters on this story: Nick Turner in New York at nturner7@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net

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