Clearwire Plays the Default Card, Again

Sprint and Clearwire have taken the gloves off in an effort to win approval for their merger by playing what has become Clearwire’s favored card. Yep, they have once again threatened to stop paying interest and thus default on their own debt, thereby forcing themselves into bankruptcy. And yes, I think it will probably work — again.

Ever since Dish tried to derail Sprint’s bid of $2.97/share with a competing bid of $3.30, things have gotten a bit messy. Clearwire’s board obviously can’t ignore such an alternative, but Sprint’s majority ownership puts them in a position where they can block alternative deals and financing offers.

Clearwire has used the prospect stopping interest payments on its debt as leverage several times before, forcing Sprint to step up or lose control of all that spectrum. Now Sprint gets to be on the other side of the lever, as minority shareholders must weigh the risks of turning down the deal they have in hand in hopes of a better one they can’t even win a shareholder vote for.

In the wake of DT/T-Mobile’s enhanced offer for MetroPCS to pacify opposition from large shareholders, Sprint is clearly ready to play hardball. The fact that Clearwire’s actual business burns so much cash gives Sprint that extra BK-urgency ammunition to force a deal through, and they’re going to use it.

Yet still, I suspect there is a real chance of Sprint throwing Clearwire shareholders a bone at some point. Certainly the erstwhile WiMAX protagonist’s current share price of $3.26 reflects the market’s belief that they will.  And the additional news that someone else has recently bid $1-1.5B for some of the company’s spectrum reflects the fact that things are still quite fluid.

Meanwhile, Dish appears to be taking a new look at what has always seemed the best alternative: merging its spectrum and support into T-MobileUSA. Regulators would surely fall all over themselves to wrap things up with both Sprint and T-Mobile rejuvenated with the spectrum and backing to make the wireless game a viable foursome again.

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Categories: Mergers and Acquisitions · Wireless