Clearwire Corp.’s board agreed to a sweetened, $2.97-a-share takeover bid from its wireless partner Sprint Nextel Corp., which is now offering $2.2 billion to acquire the portion of the company it doesn’t already own.
The new offer was approved by Japan’s Softbank Corp., which agreed in October to buy 70 percent of Sprint for about $20 billion, the companies said today in a statement. The bid also has the backing of Clearwire’s strategic investors such as Comcast Corp. and Intel Corp.
Sprint is moving to acquire 100 percent of the company after their four-year joint venture struggled to build a nationwide wireless network, leading to billions in losses for Clearwire. Sprint aims to take over Clearwire’s spectrum -- the airwaves that let mobile devices operate -- and use it to bolster its own network. Sprint Chief Executive Officer Dan Hesse said today that the deal is “critical” to turnaround efforts at the third-largest U.S. wireless carrier.
“Strategically this is a good move for Sprint,” said Joe Bonner, an analyst at Argus Research in New York. “Clearwire was a never-ending source of problems, and Softbank has the deep pockets to get it done.”
Clearwire fell 14 percent to close at $2.91 in New York. Shares of the Bellevue, Washington-based company closed at $3.37 at the end of last week, signaling that investors had expected a higher bid. Sprint rose 0.2 percent to $5.56 today.
For Sprint, the challenge now is getting the majority of Clearwire’s other investors to agree to the deal. Sprint said it has commitments from Comcast, Intel and Bright House Networks LCC, which own about 13 percent of the voting shares. Two other investors, Mount Kellett Capital Management LP and Crest Financial Ltd., have voiced opposition to a Sprint takeover.
“There is a significant block of Clearwire shareholders that will try to hold out for a higher price,” said Jonathan Chaplin, an analyst at New Street Research in New York. At least half of Clearwire’s non-Sprint investors have to vote in favor of the deal, and after a week of heavy volume, it’s unclear how big a block of stock they own, he said.
“If holders that are opposed to a deal at this price picked up 20 percent to 25 percent of the 190 million shares that have traded since this deal was announced, they could have enough shares to block a deal,” Chaplin said.
Mount Kellett said last week that the $2.90-a-share offer “grossly” undervalued the company. Clearwire’s unused spectrum alone is worth about $6 billion to $9 billion, Mount Kellett said. The firm said it owns about 3.6 percent of Clearwire’s outstanding stock, which it considers to be worth $6.30 a share.
Crest Financial, which said it owns 6.6 percent of Clearwire’s Class A shares, filed suit to block the takeover, which it called “the capstone in Sprint’s ongoing effort to interfere with Clearwire’s ability to operate as an independent company.”
Clearwire CEO Erik Prusch said today that his company explored a range of options, including a 2010 spectrum sale and financing alternatives, without success. Google Inc. and Time Warner Cable Inc., two other investors, sold their stakes for $2.26 and $1.37 a share, respectively, Prusch said in an interview. Craig McCaw’s investment fund Eagle River Holdings LLC, meanwhile, sold its holdings for $2.97 last week.
“The board was unanimously able to determine this was the best path forward,” Prusch said.
Without the deal, Clearwire may have to restructure, Prusch said on a conference call. Blackstone Group LP has been advising Clearwire on restructuring options.
At Sprint, the move will let the company consolidate its network expansion, rather than forcing it to rely on a joint venture. That will help it better compete with market leaders Verizon Wireless and AT&T Inc., Sprint’s Hesse said.
“We really wanted to be in control of our spectrum assets, and this was the most efficient way to build one network,” Hesse said in an interview.
Sprint is working with suppliers to make devices compatible with the three separate airwave frequencies used by the combined network, he said. So-called hot-spot broadband access devices could be available next year, with phones to follow in 2014, Hesse said.
Sprint, based in Overland Park, Kansas, is getting an influx of cash from Softbank, giving it more money to make deals. Softbank wouldn’t agree to a bid above $2.97 a share, people familiar with the negotiations said last week.
Billions in Debt
Today’s agreement gives Clearwire an enterprise value of approximately $10 billion, including net debt and spectrum lease obligations of $5.5 billion, according to the statement.
In connection with the deal, Sprint agreed to provide as much as $800 million of additional financing in the form of exchangeable notes.
“When you add the $800 million interim financing arrangement, you are looking at a bid in the range of $10.5 billion,” Hesse said. “We believe that is a fair offer and a 130 percent premium to the stock price before the Sprint/Softbank deal became public.”
When Sprint formed the Clearwire venture in 2008, it relied on $3.2 billion in investments from Google, Intel and cable companies. After losses piled up, partners such as Google and Time Warner Cable sold their stakes for a fraction of their original value.
Sprint, Softbank and Clearwire all enlisted financial advisers and lawyers to handle the deal. Citigroup Inc. advised Sprint on the finance side, while Skadden, Arps, Slate, Meagher & Flom LLP and King & Spalding LLP acted as legal counsel. Softbank, based in Tokyo, used the Raine Group as financial advisers, with Morrison Foerster LLP was legal counsel.
Clearwire relied on Evercore Partners as its financial adviser and Kirkland & Ellis LLP as legal counsel. Centerview Partners acted as financial adviser, and Simpson Thacher & Bartlett LLP and Richards, Layton & Finger acted as counsel to Clearwire’s special board committee.
The deal’s opponents probably face an “uphill battle” in blocking the transaction, Chris King, an analyst at Stifel Nicolaus & Co. in Baltimore, said in a note today. Still, it could be a close call, he said.
“Given the strong minority opposition that will likely remain, final approval may come down to a vote-counting exercise,” King said.