Clearwire looks to have officially endorsed its pending acquisition by Sprint Nextel, with a “special committee” set up by the carrier sending a letter out this morning to investors recommending they vote in favor of the $2.2 billion deal. The vote is scheduled for May 21.
The special committee was set up earlier this year when Dish Network put in a counter-bid for Clearwire. However, Dish does not appear to be done in this scenario as it has also put in a $25.5 billion bid for a 68% stake in Sprint Nextel itself countering a $20.1 billion bid put in last year by Softbank for a 70% stake in Sprint Nextel. Softbank last week laid out various reasons why its offer was superior for Sprint Nextel shareholders. Sprint Nextel has noted that its pending acquisition of Clearwire is linked to its own acquisition by Softbank.
The special committee sites a number of reasons in endorsing the Sprint Nextel offer, most of which revolved around the immediacy of the offer, Clearwire’s ongoing inability to find new funding and, perhaps most importantly, Sprint Nextel’s current majority stake in Clearwire and the carrier’s comments that it would not approve a sale to another entity.
“On the unanimous recommendation of the special committee, the Clearwire board has unanimously concluded that the proposed transaction with Sprint is the best strategic alternative for stockholders, representing fair, attractive and certain value, especially in light of the Company’s limited alternatives and the well-known constraints of its liquidity position,” wrote Clearwire Chairman John Stanton in a note to investors.
The Sprint Nextel deal, which was initially announced last year, puts a value of Clearwire’s stock at $2.97 per share, or a 40% premium compared with Clearwire’s stock price prior to receiving its first $2.60 per share non-binding offer from Sprint Nextel on Nov. 21. Sprint Nextel has stated that Clearwire and its vast spectrum holdings are a major component of the carrier’s future-looking LTE network plans.
Stanton highlighted a number of reasons as to why shareholders should accept the offer, including Clearwire’s inability to attract a second major wholesale partner to help fund the carrier’s plans to rollout LTE technology; Clearwire’s inability to sell of access spectrum assets in order to help fund operations; the carrier’s failure to attract significant alternative funding sources; Sprint Nextel’s controlling stake in Clearwire and how Sprint Nextel has said it would not approve a sale to another entity; and the possibility that a bankruptcy filing by Clearwire will hurt shareholder value. The note to investors did not mention the Dish proposal.
Clearwire noted that it currently has enough cash on hand at current burn rates to last through the third quarter of this year, with the ability to stretch that to early 2014 if it halts all ongoing network plans.
Reports surfaced last month that Verizon Wireless had put in a $1.5 billion offer to acquire some of Clearwire’s spectrum, while a pair of Clearwire investment groups have offered to provide private funding to Clearwire should it not accept the Sprint Nextel offer.
While Clearwire is in favor of the Sprint Nextel deal, analysts note that the proposal looks to have a number of hurdles in front of it.
“While this recommended path should not be seen as a huge surprise, there remain questions as to if [Clearwire] will receive approval of this recommendation from the majority of the minority shareholders,” explained Wells Fargo Securities senior analyst Jennifer Fritzsche in a research note. “Some of these shareholders have been very public as to their dissent to this deal. Just last week, four of [Clearwire’s] largest shareholders (which own 18%-plus of the shares) indicated that they will act as a group and talk to other interested parties regarding the [Clearwire] asset. It is our understanding this group has retained legal counsel to help with this initiative. We believe there are other shareholders which do not just want a higher bid for the asset, but rather, they want [Clearwire] to take advantage of the open capital markets and raise funds necessary to be an ongoing entity.”
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