Well, the traders were apparently both right and oh so wrong about Sprint’s plans for Clearwire. In the wake of the Softbank deal announcement, reports this morning have Sprint moving to take control of Clearwire by simply boosting their ownership stake above 50%.
Supposedly they are buying a 4.5% stake from Eagle River, which will give them majority control of the wholesale WiMAX and soon-to-be LTE protagonist. Apparently they sniffed at the doors of a few other stakeholders like Intel and Comcast before finding Eagle River willing, and the filing may reach the SEC by today. No need to buy up Clearwire outright, at least not yet.
What this seems to do is to effectively keep decisions about different plans for Clearwire’s spectrum on ice, making it unnecessary to make any rash moves with the Softbank deal still requiring a couple of quarters at least to come to fruition. I had recently argued that there was no need for haste, since Sprint’s 48+% stake gave them enough oomph to have the same effect. But this is quite elegant as well, and doesn’t cost them that much.
Of course, as majority owner they’ll be more directly in charge of Clearwire’s TD-LTE rollout. Hence, the next question is whether they will put money in to get that started now or wait until Spring. My guess is that they’ll have Clearwire take another swing at raising money itself in light of the drastic shift the Softbank deal represents.
Besides, what may happen here is that Softbank will wind up with both separate wholesale and retail LTE arms, promising the FCC to continue with wholesale plans for Clearwire’s huge 2.5Ghz spectrum in order to avoid the potential criticisms around owning ‘too much’ spectrum that regulators have been tossing around in regards to Verizon and AT&T.
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Categories: Mergers and Acquisitions · Wireless
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Rob,
Below is a link to the filing. The essence of the deal is that Eagle gets $2.97 per share in the sale plus a contingent “makewhole payment” if, prior to 10/15, other stock is acquired by Sprint at a price higher than $2.97. As a result of this Sprint now owns 50.8% of CLWR and the impetus for any other action has diminished.
http://www.sec.gov/Archives/edgar/data/101830/000119312512426578/d424777dsc13da.htm
A few more thoughts on this transaction– what does this mean?
— S paid $2.97 for a block to gain control. This probably represented some premium over their view of underlying value.
— the founding shareholder was willing to sell out at this price and can’t be sure of getting a higher price through the “makewhole”. This is also a strong indicator of perceived value.
— Sprint now controls which means that, for example, they can block any actions by CLWR that they deem adverse to their interests, they can change management at CLWR should they so wish and the ability of a third party to do a deal for this spectrum is close to zero.
I haven’t seen CLWR trade subsequent to this announcement but have to believe it will be down.
Yes, this can’t be what those who ran up the price were hoping to see happen. But on the other hand, stabilizing the situation for Softbank’s later use does give Clearwire’s future a longer feel to it.
Don’t Intel and Comcast have the ability to purchase their share of Eagle River’s shares? I have not seen anything to suggest they will other than a report that said Sprint tried to approach each of them and did not make much progress with them. This could suggest they have something else in mind.
Apparently Comcast and Intel have 30 days to respond to the offer to sell these shares (which offer has been accepted by Sprint). If they elect to exercise the right to buy they would be permitted to buy their pro-rata amount according to current ownership percentages. Either way Sprint will end up with 50%+ of the stock.
What if CLWR sells some equity… I believe if Intel and Comcast exercise their right, Sprint will have 50.2%. It would not take much of a capital raise to dilute them back down…and could be consumated in the 30 day window. Not that this is likely to happen but I think we have not seen all the pieces of this yet…
It was interesting that Eagle River first submitted their offer on the 13th, the weekend Sprint and SB were trying to push the deal thru as it was leaked in the media. This would mean they wanted to do this prior to the announcement to help satisfy SB in someway. Just not sure where this all ends up.
I believe Eagle River did this to get the Sprint/SB deal done without giving up their economic interest. It’s unclear what comes next but it could be different than what we are seeing today.
I agree that a capital raise is unlikely. Also, Sprint already owns these shares which gives them control and presumably blocking rights to any offering.
As to a hidden agenda, it appears that Eagle simply wanted out and was happy with $2.97– otherwise they would have held on. They HAVE given up their economic interest with the caveat of the makewhole which only lasts for two years.
There are some further nuances regarding Sprint’s control rights given that they now own 50%+ of the vote.
Sprint would normally be required to consolidate an entity in which they own a majority position and “control”. They apparently don’t want to do this and take the additional debt and negative operating results onto their books. As a result they have not taken up the board seat that the Eagle shares would give them the right to do but have allowed another independent director to be appointd. Also, the terms of the shareholder agreement (between S, Intel and Comcast) have certain minority protection rights– for example 10 of the 13 board members need to vote on issues such as changing C level employees, change the charter etc.
So, it’s more nuanced than simply assuming (as I did) that 50%+ of the shares allow Sprint to unilaterally direct governance. I think it’s still clear that S views CLWR as strategically important and without their say-so no-one else can buy these assets. The market consensus seems to be that no deal is imminent and why do any deal when it really isn’t necessary or timely?
So what exactly has Sprint gained by the latest move? It seems to me little has changed after all the dust has cleared. They moved the economic interest needle slightly above the 50% mark to a position they once held. One guess is that they really want to purchase the remaining interest but are down playing it as publicly as they can in order to continue buying “partners” at the cheapest rate possible. Then make a move for the remaining balance at some point down the road. Otherwise, they continue to purchase an asset they is actively being shopped by management in order to fund the overall business plan. Maybe they go after the debt which is rumored to being actively accumulated by Dish now over $900 million… Can’t wait for the cc next week.
Good questions. Hesse has openly said they are interested in buying in the other “strategic partners” at the right price and the only reason to do that at this point would be to void the provisions of the shareholder agreement, and, of course, because LT they think it would be a good investment.
As to a rumor of Dish buying some debt, I think that only makes sense if that would be a route to control through a bankruptcy process. For that to be the case you have to believe that the value of the spectrum does not cover the debt ($4.5 Billion), and that Sprint would let it go. The fact that Sprint is buying in minorities would seem to make that belief very questionable.
If they were willing to use it, the leverage Sprint has in all of this is that CLWR has some gargantuan debt maturities coming due in 2015. With negative EBITDA and FCF, the ability to refinance that is also questionable w/o outside assistance.
I find it hard to believe Eagle River would hand over the keys so easily without something else in the mix, especially given the resistance from Intel and Comcast. Was there something else going down that McCaw did not agree with realted to something Stanton and the management team were working toward? With each new development comes more questions…
Usually it is the stick not the carrot that forces unexpected outcomes.
Sorry to inform you Eagle River gave up the keys long ago.
Now what, Mr. P?
Apparently Charlie Ergen isn’t bluffing? 🙂