Sprint Nextel Corp. (NYSE: S) announced Dec. 17 Clearwire Corp. (NASDAQ: CLWR) accepted its bid to buy the remaining 50-percent stake in the company it does not already own for $2.97 per share—an increase over its original Dec. 13 offer of $2.90 a share. The $2.2 billion price is 128 percent more than Clearwire’s stock value in early October when information first leaked that Sprint planned to buy the struggling wireless network.
Already a 51.7-percent stakeholder in Clearwire, purchasing the remainder of the company will allow Sprint—the No. 3 US mobile service provider—to expand its wireless data services. The purchase was made possible by an investment by Japan’s Softbank, which provided $20.1 billion in October, giving it majority control of Sprint.
With the Clearwire acquisition, Sprint plans to grow its Long-Term Evolution Network which supports the newest smartphones like the iPhone 5. Clearwire owns spectrum similar to the radio band used by Softbank, and therefore creates a pathway that can potentially be used by devices in both the United States and Japan.
“Today’s transaction marks yet another significant step in Sprint’s improved competitive position and ability to offer customers better products, more choices and better services,” said Sprint chief executive Dan Hesse. “Sprint is uniquely positioned to maximize the value of Clearwire’s spectrum and efficiently deploy it to increase Sprint’s network capacity.”
Clearwater shareholders, which also include stakeholders Comcast, Intel and Brighthouse Networks, declined Sprint’s original offer last week after the bid triggered a sudden increase in stock prices. The three companies, however, own 13 percent of the voting shares of the company, and their commitment assisted Sprint in reaching the deal. Still, other investors including Mount Kellett Capital Mangement LP and Crest Financial Ltd. were opposed to the transaction.
Mount Kellett said last week that the original offer “grossly” undervalued the company. The firm owns just 3.6 percent of Clearwire’s stock, however, while Crest Financial owns a 6.6 percent stake.
“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.
Some analysts even stated the company should hold out for at least $5 a share. At the time of its original offer, Sprint stated if Clearwire’s board agreed to its initial offer it would also provide $800 million in interim financing to the cash-strapped company. Although the Clearwire board held out for a better deal, reports indicate the $800 million offer stands.
“Strategically this is a good move for Sprint,” Joe Bonner, an analyst at Argus Research in New York, told Bloomberg. “Clearwire was a never-ending source of problems, and Softbank has the deep pockets to get it done.”
Since its IPO five years ago, Clearwire shares have fallen more than 85 percent. When the Sprint offer came to light Dec. 13, however, shares jumped 15 percent to $3.16. After the deal was announced Dec. 17, shares were at $2.94 in midday trading, having fallen more than 12 percent from a day earlier. Sprint stock remained steady at $5.53.