Clearwire investors aim to force Sprint to sweeten bid

NEW YORK Fri May 17, 2013 7:03am EDT

People walk past a Sprint store in New York December 17, 2012. REUTERS/Andrew Kelly

People walk past a Sprint store in New York December 17, 2012.

Credit: Reuters/Andrew Kelly

NEW YORK (Reuters) - Minority shareholders of Clearwire Corp CLWR.O are expected to vote down a buyout offer from Sprint Nextel Corp (S.N) next week and force the No.3 U.S. wireless company to cough up more cash for control of Clearwire's valuable spectrum.

Sprint owns more than 50 percent of Clearwire and has offered to buy the remaining roughly 49 percent at $2.97 per share, or $2.2 billion. For the deal to succeed, it needs approval from more than half of minority shareholders at a special meeting on May 21.

Investors with roughly 31 percent of the public shares have said either in statements or in interviews with Reuters that they are unhappy with the offer. They include: Mount Kellett Capital Management LP, Highside Capital Management, Glenview Capital Management and Chesapeake Partners Management.

"There's no way it passes unless they bump the price," said Taran Asset Management principal Chris Gleason, whose firm manages more than 1 million Clearwire shares. He predicted that Sprint's offer will be voted down and said $5 to $7 per share is a fairer price range.

Clearwire shares closed at $3.23 on Thursday, and have been trading above the Sprint offer price since early January.

"I'd be surprised if there are a lot of investors that would vote in favor of taking a loss," said a portfolio manager at a top-20 Clearwire shareholder, who was not authorized to speak to the media.

"It's illogical to assume anybody would vote in favor of the deal with the stock trading where it is," said the manager, adding that a $4.50-per-share bid would be "much fairer."

Sprint has dismissed criticism that its bid undervalues Clearwire and says the spectrum valuation compares well to past airwaves sales.

The bid is contingent on Sprint's sale to SoftBank Corp (9984.T), which has a target close date of July 1, and the Japanese wireless service provider would need to approve any change in terms. The bid could also be usurped by satellite TV provider Dish Network (DISH.O), which has made a rival offer for Sprint. Dish Chairman Charlie Ergen has said he would honor Sprint's agreement with Clearwire.

HOW HIGH IS HIGH?

Clearwire has been losing money and has struggled to win customers, but its shareholders argue that it deserves a higher price because all the top U.S. network operators are looking for opportunities to buy more airwaves.

"We think that Sprint could win the vote on the 21st by sweetening its offer to about $4.00," said Macquarie analyst Kevin Smithen, who estimated that this would cost Sprint another $500 million to $600 million. Macquarie Group (MQG.AX) is among a group of four banks looking to finance Dish's bid for Sprint. {ID:nL2N0DW2DH]

But it is not clear that Crest Financial, which holds about 8 percent of Clearwire's public shares, would even agree to a higher Sprint price. Crest has said that Clearwire would be better off as a stand-alone company, and is leading a proxy battle against the deal.

Sprint has said full control of Clearwire would help it better compete against larger rivals Verizon Communications Inc (VZ.N) and AT&T Inc (T.N). It has also said that strategic investors with 26 percent of the public shares have committed to vote for the deal.

If the deal is voted down, one big concern is that Clearwire could end up in bankruptcy. Clearwire has warned of that risk and said it might default on interest payments due on June 1 if the deal is not approved and it is unable to draw on more funding from Sprint.

Roe Equity Research analyst Kevin Roe thinks the risks from a negative vote on Tuesday outweigh the cost of a higher bid to Sprint. For example, Sprint would forego potential savings that it could gain from combining its network with Clearwire's.

"The alternative is the risk of bankruptcy and not having control over it. Over what, over less than $1 billion?" he said.

If Clearwire's assets were auctioned off in bankruptcy Sprint may also have to compete with deep-pocketed rival bidders. For example, Verizon has recently offered to buy a portion of Clearwire's spectrum for $1 billion to $1.5 billion.

Even if Tuesday's vote goes badly, Sprint would still hold roughly 68 percent of Clearwire after a debt conversion and the agreed sale of Clearwire shares by strategic investors Comcast Corp (CMCSA.O), Intel Corp (INTC.O) and Bright House Networks. SoftBank has said it would be happy with this higher stake and saw no need to sweeten the Clearwire bid.

But a large equity stake would not be enough to protect Sprint's interests in the case of a bankruptcy, where debt holders have more clout than shareholders.

Creditors also include Dish, which is looking to build a wireless service to expand beyond its maturing TV business. Dish first announced its ambitions to own Clearwire, with a $3.30 per share counter-offer in January. Dish owns about $950 million of Clearwire's roughly $4.5 billion in long-term debt.

"I don't think Sprint wants to bring it to the point where they'd have to negotiate with Dish in bankruptcy," said Nomura analyst Michael McCormack.

(Reporting by Sinead Carew; Editing by Tiffany Wu and Leslie Gevirtz)

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Comments (2)
nycnikato wrote:
The only thing required here is for some employee with the involved banks to come forward with information.

May 17, 2013 8:04am EDT  --  Report as abuse
rj355 wrote:
I have a couple of question’s. 1. if the share holders want more for there shares, are they willing to take care of their long term debt? and the 2nd question, the current offer on the table is fair, because the company that is offering to buy the rest of the company, assumes the debt with the purchase, you all need to weigh the differences,So here’s the question,if you do get a better offer per share, will you put that toward the long term debt? So the persuing company doesn’t have to carry the debt with the purchase.

May 17, 2013 9:32am EDT  --  Report as abuse
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