Sprinting Ahead of the Competition

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Sprint Nextel (NYSE: S), which already owns a percentage of Clearwire (NASDAQ: CLWR), has decided to acquire the rest of it at a price of $2.97 per share. This price has effectively raised the acquisition price to $2.2 billion. Sprint Nextel has been trying to acquire Clearwire for months now, but the deal didn’t materialize. Clearwire shareholders were dissatisfied with the earlier offered price of $2.60 per share, and Sprint finally came to the table with one most of them could swallow.

The board accepted the offer quickly, and now the only requirement left is the voting of minority shareholders.  This is precisely the reason why Softback spent $20 billion to enable Sprint to buy the rest of Clearwire. There are still many shareholders who believe that the Sprint’s bid is too low.  Crest Financial, now with an 8% stake in Clearwire, is suing everyone to stop not only this deal but the Softbank one and has filed a class-action suit on behalf of Clearwire’s shareholders.  It wants a much higher price for Clearwire’s spectrum -- like six dollars per share. 

This has allowed Dish Network to come in with a $2.4 billion bid that the board has not recommended to shareholders and creating even more confusion.

The major reason behind the acquisition is Sprint’s need to reinvent itself after SoftBank already acquired a major interest in an American telecom operator. The motive here is to challenge AT&T and Verizon by strengthening Sprint.  However, Clearwire is under a heavy debt of $4.27 billion and the major issue is time.  Sprint would like to get both this and the Softbank sale completed quickly to get on with shoring up the bottom of the U.S. wireless market, but also realizes the opportunity to get Clearwire a stink-bid price.

Clearwire’s been a mess for a while. Google (NASDAQ: GOOG) suffered a net loss of $ 453 million on its Clearwire stake and was one of the first investors to sell out. Google felt that it’s better to cut bait rather than waiting for Clearwire to run out of cash. Additionally, there are many companies that showed interest in Clearwire in the past, like Time Warner cable apart from Google, dropped the company due to its consistent under performance. Other main shareholders in Clearwire, such as Bright House Network and Intel and Comcast, have already given a nod to the new offer.

Sprint is taking an excellent advantage of the current state of Clearwire due to its grave mismanagement. But by nickel and diming the situation it has given the situation time to uncover other buyers and driving up the cost of the deal anyway.  If the DoJ holds up the Softbank deal on security concerns – unlikely given how accommodating the Japanese have been in other areas recently – it would likely scuttle both deals and leave the door wide open for T-Mobile/MetroPCS to move into the vacuum of what is left of Sprint.

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