Sprint Nextel Corp. offered to acquire all of Clearwire Corp. in a $2.1 billion deal, ending a four-year joint venture that struggled to build a nationwide network capable of challenging Verizon Wireless and AT&T Inc.
Sprint, which already owns more than 50 percent of Clearwire, is seeking to acquire the remaining shares at $2.90 each, according to a regulatory filing today. That’s 5.5 percent more than the stock’s closing price in New York yesterday. Sprint proposed to provide interim financing of as much as $800 million to help keep the money-losing Clearwire afloat.
Sprint, the third-largest U.S. carrier, is getting an influx of cash from Japan’s Softbank Corp., which agreed in October to buy 70 percent of Sprint for about $20 billion. While Clearwire never managed to break even, it owns a broad swath of airwaves across the country. That would give Sprint the ability to improve its own network and handle a surge of traffic generated by smartphones and tablets.
“Clearwire’s got a tremendous asset in deep spectrum,” Jonathan Schildkraut, a New York-based analyst with Evercore Partners Inc., said before the Clearwire offer was announced. “Sprint would like access to that.”
Shares of Bellevue, Washington-based Clearwire jumped 15 percent to close at $3.16 in New York trading, rising above the offer price. That suggests investors expect the bidding to go higher. Walter Piecyk, an analyst at BTIG LLC in New York, said the offer may have to climb to more than $5 a share to win over the majority of non-Sprint investors.
“If a shareholder is buying the stock over $2.90 today, that is probably a pretty good indication that they will not be voting in support of these deal terms and will push for a higher price,” Piecyk said in an e-mail.
Sprint formed the Clearwire joint venture in 2008, relying on $3.2 billion in investments from Google Inc., Intel Corp., and cable companies such as Comcast Corp. and Time Warner Cable Inc. The idea was to build a high-speed wireless network that would shake up the telecommunications industry and allow for a wave of new applications and devices.
Clearwire never lived up to its original ambitions, and the costs of the project led to billions of dollars in losses. Along the way, partners such as Google and Time Warner Cable sold their stakes for a fraction of their original value.
Sprint and Clearwire also bet on the wrong wireless standard. The companies relied on a technology called WiMax to provide the network’s speedy connections. That standard was later overtaken by LTE, or long-term evolution, which is now the industry’s preferred technology. Sprint has been racing this year to catch up with Verizon and AT&T in LTE.
Sprint began tightening its grip on Clearwire in October, when it made an offer to buy telecommunications pioneer Craig McCaw’s stake in Clearwire. 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. McCaw, who co-founded Clearwire before Sprint built it into a joint venture, retired as chairman of the company in 2010.
The move continues Sprint’s spectrum buying spree, fueled by the initial $3 billion from Softbank that was paid as part of their deal in October. Sprint, based in Overland Park, Kansas, also has made airwave acquisitions from U.S. Cellular Corp. to gain spectrum in the Midwest.
Clearwire shares jumped earlier this week after reports that Sprint was considering a deal for about $3 a share. The stock had climbed 42 percent this year through yesterday. Sprint shares dropped less than 1 percent to $5.64 today.
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 offered to provide Clearwire with monthly financing as part of the $800 million funding plan. The payments, made in exchange for Clearwire Class B shares, would start once the deal is signed. The full financing would be available when Clearwire shareholders approve the takeover.
Sprint has sent the proposal to Softbank for review, according to the filing. Sprint said last month that it would be delaying the proxy statement describing the Softbank deal until Dec. 21. That move allowed the company to continue talks with Clearwire, a person familiar with the matter said this week.
A deal would lock in a value for shareholders who have endured years of dramatic price fluctuations. Clearwire’s realized volatility, which increases as swings in a stock’s price widen, is 129 for the past 90 days, higher than every other company in the Russell 1000 Index, data compiled by Bloomberg show. The figures for all of 2012 and the past three years are 94 and 87, respectively, the third-highest values in the index, the data show.
After Sprint closed its purchase of the Eagle River stake 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.
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 today that it opposes the latest Sprint offer as well.
“Today is the capstone in Sprint’s ongoing effort to interfere with Clearwire’s ability to operate as an independent company, to thwart the planned development of Clearwire’s network, and to take Clearwire’s valuable high-speed broadband spectrum for itself to the detriment of Clearwire’s minority shareholders,” Crest Financial said in a statement.
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 in an interview before today’s bid was announced.
“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.”