UPDATE 4-Proxy firms divided on Clearwire-Sprint deal

Fri May 10, 2013 5:31pm EDT

* ISS says Sprint offer is Clearwire's best option

* Glass Lewis said Clearwire has good alternatives

* Clearwire shareholders to vote on deal May 21

By Sinead Carew

May 10 (Reuters) - The biggest U.S. proxy advisory firms on Friday issued conflicting opinions on Sprint Nextel Corp's proposed takeover of Clearwire Corp, with ISS advising Clearwire shareholders to vote in favor of the deal and Glass Lewis urging them to vote against it.

Sprint, the No. 3 U.S. mobile service provider, already owns just over 50 percent of Clearwire's shares and has agreed to pay $2.97 per share for the rest.

Clearwire shareholders are due to vote on the hotly contested deal at a special meeting on May 21. For the deal to succeed, a majority of Clearwire's minority investors must approve it.

ISS, the biggest U.S. proxy advisory firm, said Clearwire lacked any better options to keep the wireless service provider afloat.

Glass Lewis, the No. 2 U.S. proxy firm, said Sprint had failed to provide a clear, compelling case to suggest that its offer is the best alternative available to Clearwire.

Clearwire shares closed down 2 cents at $3.25 on Nasdaq. Sprint shares rose a penny to $7.36 on the New York Stock Exchange.

Clearwire said on Friday it continued to recommend the Sprint deal and that Glass Lewis "reached the wrong conclusion" and "failed to recognize the comprehensive process" that led Clearwire to agree to the Sprint transaction.

Sprint said it was pleased with the ISS recommendation.

Several large minority shareholders, including Crest Financial, which owns about 8 percent of the minority votes, vehemently oppose the Sprint bid, saying it undervalues Clearwire. Another minority shareholder, Aurelius Capital, sued Clearwire's directors last month.

Crest, which has launched a proxy contest to block the deal, said on Friday it strongly disagreed with ISS.

Crest also said it was taking steps to ensure that it could potentially sue to seek fair value for its Clearwire shares in the hope that a court would rule that Clearwire shares are worth more than the Sprint offer price.

It noted that shareholders who vote for the deal would forego their legal right to seek a higher valuation in court.

A group of four shareholders owning roughly 17 percent of Clearwire's minority shares said last week they were unhappy with Sprint's offer price. Mount Kellett, which led that shareholder group, had no immediate comment on the advisory firms' recommendations.

ISS, which researches proxy issues and makes voting recommendations to institutional investors, is closely watched and often followed in disputed situations such as this.

But even with the ISS recommendation in favor of the deal, Chris Gleason, a principal at Taran Asset Management, which owns about 1 million Clearwire shares, said the deal has "zero chance" of being approved at the May 21 meeting.

"It's not a situation where the vote is controlled by people who vote with ISS," said Gleason, noting that hedge funds, which represent a large amount of Clearwire shares, are not required to vote in line with ISS.

Guggenheim analyst Shing Yin said the only way shareholders would vote for the deal is if Sprint raises its offer: "I do think that if they don't raise the bid they'll get voted down."

Glass Lewis said its view that Clearwire has other alternatives is supported by an offer of $3.30 per share made in January by Dish Network, and a recent offer from Verizon Communications to buy Clearwire spectrum for $1 billion to $1.5 billion.

Glass Lewis also pointed to "more attractive lending offers from both Crest and Aurelius."

But ISS said that certain governance provisions give Sprint an effective veto over Clearwire's other options. It said the Sprint offer appeared fair and that Clearwire appeared "increasingly unviable on a stand-alone basis."

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