Sprint Nextel to wait and see on Clearwire plans

Sprint Nextel Corp. (S) said it has not yet decided as to whether it would participate in Clearwire Corp.’s (CLWR) recently closed debt offering that brought in more than $1.1 billion for the carrier, but did note that a recent amendment to Clearwire’s ownership structure could allow Sprint Nextel’s ownership stake to fall below 50%.
Sprint Nextel noted in a statement that it “has preemptive rights for a period ending on Jan. 2, 2011, to elect to acquire up to its pro-rata share of exchangeable notes, if it chooses to do so.” The carrier, which currently owns more than 55% of Clearwire, said that while it has not decided on its course of action it was continuing to hold talks with Clearwire regarding “further investment in the company but has no plans at present to acquire Clearwire.”
Clearwire’s current focus is on building out its WiMAX network that at the end of the year is expected to cover 120 million potential customers. Sprint Nextel, as well as other investors in Clearwire, currently rely on that network to offer advanced mobile services.
Clearwire noted that its recent debt offering would allow it to resume its build out plans that including expanding coverage to more than 250 million pops over the next several years.
As for its future ownership stake, Sprint Nextel said that through an agreement with Clearwire investors the carrier can “unilaterally surrender voting securities to reduce its voting security percentage below 50%.” Sprint Nextel said the move will provide it with “additional flexibility to avoid any risk that Sprint incurs a default under its debt agreements because of its voting interest in Clearwire.”
Sprint Nextel added that regardless of its decisions, its economic interest in Clearwire would not change.
Financial analyst have expressed concern that Sprint Nextel’s controlling stake in Clearwire could leave the company exposed to credit defaults by Clearwire should the company be unable to attract enough capital to fund its expansion plans or not be able to follow through with its current business model. This concern has accelerated in the face of the next-generation network launch by Verizon Wireless, as well as planned launches by other rivals.
Sprint Nextel’s stock was up initially this morning, but has since retreated to around its opening price. Clearwire’s stock was trading down more than 2%.