What is Sprint Going After Now?

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Sprint Nextel (NYSE: S) has offered to buy the remainder of the 49% of Clearwire (NASDAQ: CLWR) that it does not already own. In a 13D filing with the SEC this week, Crest Financial announced it purchased another 11 million shares, increasing its stake to 57.7 million shares, or around 3.9% of Clearwire's outstanding shares.

The stake increase comes as an effort to block the $2.2 billion offer by Sprint to buy the wireless spectrum company Clearwire. Crest purchased the shares for $3.30 in the open market, compared to Clearwire's current share price of $2.90. Clearwire said on Monday that its board supports the Sprint deal and that it could risk a financial restructuring if it does not succeed.

Sprint’s offer comes in at $2.2 billion or $2.90 per share. The announcement comes roughly eight years after Sprint announced its merger with Nextel – a segment and service that Sprint now plans to shut down in 2013. David Einhorn, the founder of Greenlight Capital, remains one of Sprint's largest shareholders (see David Einhorn's newest picks).

The Softbank acquisition of a 70% stake in Sprint has provided the mobile communication company with $8 billion in capital. This capital injection is in part fueling Sprint’s push to finish buying up Clearwire. The $20 billion investment by Softbank will be split between shareholders and acquisition capital for the company, with around $12 billion paid to Sprint shareholders, and $8 billion left to the company for strategic acquisitions.

Sprint’s purchase of Clearwire will give Sprint complete control of its spectrum, meaning better performance for current subscribers and the ability to accommodate more subscribers overall. Worth noting is that the spectrum owned by Clearwire is the same frequency as that of Softbank’s, and not the same type as Sprint’s. The Sprint offer has pushed Clearwire’s stock up 30% over the last month. Billionaire George Soros was one of Clearwire's newest big-name owners last quarter (check out George Soros' key stock picks).

The Clearwire acquisition is expected to help Sprint better compete with the likes of Verizon Communications (NYSE: VZ) and AT&T (NYSE: T), which are the number one and number two wireless providers in the U.S., respectively. Billionaire investor and long-time Forbes columnist Ken Fisher is one of AT&T's largest owners (check out Ken Fisher's latest picks).

These two companies have garnered much more respect from investors than third ranked Sprint. Although AT&T has a more robust dividend yield of 5.3% compared to Verizon's 4.6%, we believe that the latter is a much better 'growth at a reasonable price' investment. Both companies do trade in line on a profit margin and P/E basis, but Verizon trades at only 1.1x sales versus AT&T’s 1.6x.

Another wireless provider competing for market share is MetroPCS Communications (NYSE: TMUS). MetroPCS is the pre-paid no contract mobile provider that has been able to gain positive traction in the market and is up 20% over the past twelve months.

Sprint, meanwhile, saw revenues up 3.4% last year, and is expected to produce a sales increase of 4.3% by the end of this year. Sprint should continue to grow revenue modestly over the next couple years as it facilitates the build out of LTE and 4G networks. We believe that Sprint is one of the cheapest stocks in the industry and should be positioned nicely assuming a Clearwire acquisition does go through.

Currently, Sprint trades at only 0.5x sales, where Verizon and AT&T are above 1x, and MetroPCS is at 0.7x. We see the see the acquisition of Clearwire as having more momentum than Crest can stop at this point.


This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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