Sprint chief defends Clearwire deal as a whole - The Deal Pipeline (SAMPLE CONTENT: NEED AN ID?)
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Sprint chief defends Clearwire deal as a whole

by Chris Nolter  |  Published December 18, 2012 at 8:57 AM
DanHesseBlackWhite227x128.jpgSprint Nextel Corp. chief executive Dan Hesse on Monday pitched the virtues of his company's $2.97 per share takeout of Clearwire Corp. to shareholders, some of whom have expressed skepticism about a deal in recent weeks.

Sprint would pay $2.2 billion for the nearly 50% stake in Clearwire that it does not own. The Overland Park, Kan., telecom would also take on $5.5 billion in net debt and spectrum lease obligations. The deal would value all of Clearwire, including Sprint's stake, at $10 billion.

The carrier would also provide Clearwire with $800 million in notes that Sprint could eventually exchange for equity at $1.50 per share.

As negotiations between the carriers became public, there has been a push by some minority Clearwire holders to sell excess spectrum to fund the company's network buildout.

Shares of Clearwire fell 42 cents, or about 12.5%, to $2.95 following announcement of the terms on Monday. The stock had closed Dec. 14 at $3.37, indicating the expectation for a higher offer.

Hesse said that keeping Clearwire's portfolio of 2.5 gigahertz spectrum intact, rather than selling some licenses to raise capital, would maximize the value of the asset.

"Clearwire is a case where the whole is worth more than the sum of its parts," he said, comparing the company's portfolio of spectrum to a pair of shoes or a pair of socks.

"If a pair of shoes sells for $100," he said, "a single shoe would not be worth $50."

Clearwire's 2.5 GHz spectrum would complement Sprint's holdings in the 1.9 GHz and 800 megahertz bands.

The deal would be timely, Hesse said, as Clearwire proceeds to upgrade its network with long-term evolution, or LTE, technology. Further, he suggested that doing a deal now would not throw off the timing of Sprint's sale of a 70% stake to Softbank Corp.

"The value created by this transaction to both sets of shareholders may go down over time if we delay," Hesse cautioned.

Under the terms of the deal, Sprint values Clearwire's wireless licenses at 21 cents per MHz per person covered, a standard wireless metric.

Mount Kellett Capital Management LLP, which holds 3.6% of Clearwire's voting stock, has argued that the spectrum is worth at least 38 cents per MHz per person, putting the value of Clearwire at $6.50 per share or higher.

The investor argues that Clearwire's 60 MHz to 80 MHz of excess spectrum alone would be worth $6 billion to $9 billion.

Another shareholder, Crest Financial Ltd., filed suit in the Delaware Court of Chancery last week to enjoin a deal with Sprint.

Clearwire CEO Erik Prusch acknowledged during the Monday call that there had been "a lot of noise and many opinions" about the talks between the carriers.

Prusch said that Clearwire has explored numerous methods of creating value and raising capital, including a 2010 auction.

"The bids we received at the time were well below those recently speculated by some Clearwire shareholders, sell-side analysts and reporters," Prusch said.

Selling excess spectrum could backfire, Prusch suggested.

"First, it may create a new competitor," he said. "Second, we may see our spectrum further traded to someone else, including Sprint, which would not be good for us."

Clearwire's fundamental, enduring problem is the failure to attract large wholesale clients other than Sprint.

"We do not have luxury of unlimited time," Prusch said.

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Tags: Clearwire Corp. | Crest Financial Ltd. | Dan Hesse | Delaware Court of Chancery | Erik Prusch | long-term evolution | LTE | Mount Kellett Capital Management LLP | Softbank Corp. | spectrum | Sprint Nextel Corp.

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Chris Nolter

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