Sprint Nextel Corporation (NYSE: S) announced today that it would be purchasing the remaining stake of Clearwire Corporation (NASDAQ:CLWR). The deal comes after Sprint entered a partnership with SoftBank, giving Sprint access to more capital. As for the remaining stake in Clearwire, the telecom provider spent $2.1 billion or about $2.90 a share. This brings the total valuation of Clearwire to $4 billion, after you factor in the original investment from Sprint. The telecom giant says that the acquisition will help rebuild the company’s network and upgrade it to the next generation.
As of this writing, Sprint officially has a 51.7% controlling stake in Clearwire and can get the remaining stake as long as partner SoftBank approves of the buyout. Sprint continues to try and upgrade its network and its brand as competition is right on their heels.
Sprint is currently the number 3 carrier but T-Mobile’s October purchase of MetroPCS Communications Inc (NYSE: PCS) essentially puts the two firms at number 3. This deal is what led Sprint to sell a majority stake in its company to SoftBank in later October for $20.1 billion. Sprint may be still in control but SoftBank has a lot of say in what the telecom can purchase and can not.
Sprint is in a transition right now. The stock currently has no price to earnings or any forward price to earnings, for that matter. This means that analysts do not see a profit for next year. Yet, earnings are forecasted to rise 45%. The company does have an undervalued price to sales ratio at 0.49 but total debt to equity comes in at a higher end, 2.5. The company is not on solid financial ground right now as debts are outweighing cash per share but remember that the company does have SoftBank and I can tell you that they will not let Sprint die off.
Over the years, Sprint has just been unable to compete with the larger, more popular rivals Verizon (NYSE: VZ) and AT&T (NYSE: T). The difference is the network, phones and pricing. On a consistent basis, these two competitors beat out Sprint in network reports and customer surveys. This is why Sprint paid over $2 billion to purchase the rest of Clearwire, the firm can rebuild the network.
As for phones, Sprint carries most of the hot phones these days like the iPhone and android. However, I will say that Sprint was late to the party with good phones up until recently, this delay has hurt business over the years.
The bottom line here is that Sprint could be turning a corner for the better. The company has a solid partner that is ready and able to finance Sprint and now owns Clearwire who will be able to help upgrade the outdated network. That being said, these changes will take time to implement and investors should be patient and ready on the sidelines for an entry point into the telecom giant.
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