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Clearwire Investors Look for Higher Bid as Sprint Vote Looms (2)

May 20, 2013

Clearwire Investors Anticipate Higher Bid as Sprint Vote Looms

Sprint made its bid for Clearwire after agreeing to a deal with SoftBank Corp. in October. Photographer: Victor J. Blue/Bloomberg

Clearwire Corp. (CLWR:US) climbed higher above Sprint Nextel Corp. (S:US)’s $2.97-a-share takeover bid on the day before investors meet to vote on the deal, a sign shareholders anticipate a last-minute sweetening of the terms.

Clearwire rose 1.9 percent to $3.26 at the close in New York, bringing the year-to-date gain to 13 percent. That puts the stock 9.8 percent above Sprint’s buyout offer, which is slated to go before investors at a meeting in the morning.

Sprint, which already owns slightly more than 50 percent of Clearwire, is attempting to buy the remainder of the shares for $2.2 billion. Since Clearwire and Sprint agreed to the deal in December, Dish Network Corp. (DISH:US) has stepped forward with a $3.30-a-share offer -- though that bid is hindered by Sprint’s majority ownership. So far, Sprint has made no indications it will raise its price, and Clearwire’s board continues to recommend investors endorse the original offer.

Shareholders may require more convincing, said Christopher King, an analyst at Stifel Nicolaus & Co.

“The higher stock price means the majority of investors expect the vote to be no, and that another bid will come forward either from Dish or somewhere else,” said King, a Baltimore-based analyst who has a hold rating on Clearwire.

Sprint is unlikely to get the votes it needs, Walter Piecyk, an analyst at BTIG LLC in New York, said in a report last week. That may force Sprint to postpone or adjourn the proceedings, he said.

Joint Venture

Sprint, the third-largest U.S. wireless carrier, needs the majority of Clearwire’s Class A shareholders (CLWR:US) to vote yes in order to gain control of the remaining 49 percent of Clearwire it doesn’t own. The move would wind down a five-year-old joint venture with Clearwire that tried to build a nationwide wireless Internet network.

Begun in 2008, the project was backed by $3.2 billion in investments from Google Inc. (GOOG:US), Intel Corp. and cable-TV companies. After losses piled up, partners such as Google and Time Warner Cable Inc. (TWC:US) sold their stakes for a fraction of their original value.

Clearwire, based in Bellevue, Washington, has said it faces a cash crunch and needs at least $1.7 billion to keep operating. Shareholder-advisory groups Institutional Shareholder Services Inc. and Egan-Jones Ratings Co. have both endorsed Sprint’s bid, citing Clearwire’s dim prospects as an independent company.

Undervalued Assets?

Glass, Lewis & Co., another proxy-advisory firm, disagreed, saying Sprint hasn’t made a compelling case that its offer is the best option. Clearwire investors such as Crest Financial Ltd. have argued that the company’s assets are being undervalued. Crest even offered to lend the company money itself to help keep it afloat.

Sprint made its bid for Clearwire after agreeing to a deal with SoftBank Corp. (9984) in October. In that transaction, Tokyo-based SoftBank would acquire 70 percent of Sprint for $20.1 billion. The takeover would help SoftBank expand into the U.S. and give Sprint an $8 billion cash infusion.

Dish, a satellite-TV provider controlled by billionaire Charlie Ergen, is making a separate attempt to thwart the SoftBank acquisition. He bid $25.5 billion for Sprint last month, part of a strategy to expand into the mobile-phone business.

In a letter today, Crest urged Clearwire shareholders to wait until June to decide on Sprint’s bid, providing more time for Sprint’s own ownership status to be resolved.

‘Crown Jewel’

“Clearwire is the crown jewel, and Sprint is only the intermediary,” Crest General Counsel David Schumacher wrote in the letter. “There is no reason to let Sprint lock up Clearwire before Sprint’s ownership is settled.”

Dish’s $3.30-a-share counteroffer for Clearwire came in January. While the bid tops Sprint’s price, it’s more complex and may require Sprint’s consent to be completed. Clearwire further hindered the Dish offer when it began accepting financing from Sprint in March. The funding took the form of exchangeable notes, which Sprint can convert into Clearwire stock at $1.50 each under certain conditions. That means Sprint’s hold over Clearwire will grow.

Mount Kellett Capital Management LP, another Clearwire investor, said earlier this month that it forged an alliance with other shareholders to coax Sprint into making a better offer. The group, which also includes Highside Capital Management LP, Glenview Capital Management LLC and Chesapeake Partners Management Co., has 18.2 percent of Clearwire’s publicly traded shares, according to a filing at the time. The group didn’t include Crest Financial, which has lobbied to keep Clearwire independent.

No Votes

“At this point, it looks like the no votes have it,” Kevin Roe, founder of Roe Equity Research LLC in Dorset, Vermont, said last week.

Sprint could probably talk to a block of shareholders that oppose the transaction and work out a new arrangement, Roe said.

“My expectation is that Sprint will come to an agreement with the shareholders that oppose the deal, either before the vote or even after a no vote,” he said.

If Sprint thinks it will lose the vote, it will probably seek to delay tomorrow’s meeting, King said.

“They could push it back, either to work on a different offering price or try to convince more shareholders,” he said.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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