A report from Businessweek, views the takeover of Clearwire Corporation (NASDAQ:CLWR) by Sprint Nextel Corporation (NYSE:S) “The best escape for shareholders of Clearwire Corp”. Some of the Clearwire Corporation (NASDAQ:CLWR) investors might not agree that $3-a-share is attractive enough, given the attractiveness of the company’s spectrum. However, company’s ability to negotiate in limited, given the need for funds and lack of alternative buyers. This morning it is being reported that Sprint is offering to buy its remaining stake in Clearwire for $2.1 billion.
“I’ve talked with a lot of shareholders who would not be happy with $3 a share,” an analyst said. But Clearwire “needs additional funding to complete their 4G network builds. Sprint has a lot of leverage. They are the only buyer out there”.
Sprint Nextel Corporation (NYSE:S) is seeking full takeover Clearwire Corporation (NASDAQ:CLWR). Sprint holds over 50 percent stake in Clearwire. Shares of Clearwire fell below $1 in July and witnessed the biggest swings in Russell 1000 index during the past 90 days.
Sprint is offering less than a tenth of Clearwire Corporation (NASDAQ:CLWR)’s highest stock price five years ago, but the $4 billion company has few options left, due to lack of alternatives as it burns money. Clearwire has a heavy debt load, which is bigger than its market value, and the company is expected to run losses, at least up to 2017. Analysts believe that the stock price will further decline from the current price of around $2.75.
“It’s Sprint or nobody,” Christopher King, a Baltimore- based analyst at Stifel Financial Corp. said. “They’re losing money hand over fist. They’re burning so much cash. At the end of the day, Clearwire’s worth what Sprint’s willing to pay for it”.
Scott Sloat, the spokesperson for Sprint Nextel Corporation (NYSE:S) declined to comment on the company’s future plans. Overland Park, Kansas based Sprint is the third largest U.S. wireless carrier. Sprint will get an injection of $8 billion in capital from Japan’s Softbank Corp (9984), which set to buy a 70 percent stake in Sprint for about $20 billion.
Sprint Nextel Corporation (NYSE:S) and Clearwire Corporation (NASDAQ:CLWR) entered into a joint venture in year 2008 that added a portion of Sprintwaves and $3.2 billion investment from Intel Corporation (NASDAQ:INTC), Google Inc (NASDAQ:GOOG) and Cable companies including, Comcast Corp (NASDAQ:CMCSA) and Time Warner Inc. (NYSE:TWX). A deal was made to build a high speed network to outperform rivals, Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T). Clearwire could never deliver up to the expectations, and the venture is running in losses, yet to achieve it’s breakeven point. Other partners such as Google Inc (NASDAQ:GOOG) and Time Warner Inc. (NYSE:TWX) shed their stakes for a fraction of their original value.
The founder of Clearwire Corporation (NASDAQ:CLWR) and the telecommunication pioneer, Craig McCaw resigned from the post of the chairman in 2010. In October, his investment firm Eagle River Holding LLC sold their stake in the company to Sprint for $2.97.
“I don’t think this has played out exactly the way people expected and probably not the way McCaw envisioned,” Todd Lowenstein, a Los Angeles-based hedge fund manager of HighMark Capital Management Inc., which has $17 billion under management said. “Early investors and the cable companies have been dumping their Clearwire stake. People are voting with their feet.”
The offer for $3 seems in line with a 31 percent average premium paid in acquisitions of U.S. telecommunications-services providers larger than $500 million, according to data compiled by Bloomberg. The deal is expected to be announced by the end of the year, though there exist a possibility that the talks could still fall through, according to the persons familiar with the matter.