Clearwire Warns Shareholders It Must Merge With Sprint or Restructure

By Wayne Rash  |  Posted 2013-02-02

Clearwire Warns Shareholders It Must Merge With Sprint or Restructure

Clearwire’s filing of a preliminary proxy with the Securities and Exchange Commission on Feb. 1 makes it clear that the merger of Clearwire and Sprint Nextel is going to happen, absent some unlikely and unexpected roadblocks.

The statements made by the companies subsequent to the proxy filing also make it clear that the proposal by satellite television broadcaster Dish Network to buy part of Clearwire is probably going nowhere.

A close look at the proxy shows a few important things that make the merger all but a done deal. First of all, Sprint already owns 50.4 percent of Clearwire, and it’s certain that Sprint will vote its majority ownership in favor of the merger. In addition, Comcast, Bright House Networks and Intel along with a few others own an additional 13 percent of Clearwire, and according to the proxy, these shares will also be voted in favor of the merger.

Because of the commitments of the parties involved, it’s a sure thing that a quorum of stockholders will either show up at the stockholders’ meeting, or will vote by proxy. The SEC filing says these shareholders have “agreed to vote all of their shares of our common stock in favor of the proposals to adopt the Merger Agreement, to amend the Company’s Certificate of Incorporation, to authorize the issuance of additional shares of Class A common stock and Class B common stock and to adjourn the Special Meeting.”

While it’s a sure thing that a majority of the shares of Clearwire will be voted in favor of the merger, that doesn’t rule out a suit by shareholders to block the merger, or a suit by Dish claiming that they should be allowed to buy part of Clearwire and have a say in its governance. However, the proxy makes it very clear what the consequences of a failed merger would be.

“If the Merger is not completed, we may be forced to explore all available alternatives, including financial restructuring, which could include seeking protection under the provisions of the United States Bankruptcy Code,” Clearwire stated in its proxy statement.

Clearwire claims in the statement that its future as a going concern depends on completing the merger with Sprint.

“Excluding any financing by Sprint pursuant to the Note Purchase Agreement, the Company currently has capital resources that it believes to be sufficient to support its operations into approximately the fourth quarter of 2013. If the Merger is not completed, the Company may not be able to raise sufficient capital to continue its existing operations beyond that time. We can give you no assurance that in a restructuring you would receive any value for your shares or a value equal to or in excess of the Merger Consideration,” the statement said.

Clearwire Warns Shareholders It Must Merge With Sprint or Restructure

What this boils down to is that if the merger is blocked, and Sprint doesn’t spend money to keep Clearwire alive (which it’s not obligated to do), the company will restructure, and the result could be that the existing shares in the company could become worthless. In other words, block the merger and you can lose the money you’ve invested in Clearwire.

Meanwhile, Clearwire has set up a special committee to study the Dish Network proposal as required by its fiduciary responsibilities. The special committee is considering the Dish proposal, and is in discussions with Dish, but there’s no indication that Dish has proposed a feasible route to acquiring a significant portion of Clearwire.

However, Clearwire said in a statement released shortly after the SEC filing that Sprint’s agreement to provide financing for Clearwire’s build-out has been extended to February 28. This would indicate that the stockholder meeting on the merger will likely take place by that time. Currently the SEC filing gives no date or location for the meeting.

Sprint, for its part, also weighed in on the Clearwire proxy filing, issuing a press release that called the Dish proposal “illusory” and noting that it’s based on a series of events and conditions that are unlikely or impossible given the current agreements between Sprint and Clearwire. “We are pleased the Clearwire Board continues to recommend approval of our transaction and look forward to closing our merger and delivering even greater wireless service to the American consumer,” Sprint said in its release.

Previously, Dish released a brief statement regarding its talks with Clearwire. “We look forward to working with Clearwire's Special Committee as it evaluates our proposal,” said Tom Cullen, DISH executive vice president of Corporate Development in a brief press release that indicated that there would be no further comment. A Dish spokesperson declined eWEEK requests for comments on the Clearwire SEC filing.

What this really means is that the merger between Sprint Nextel and Clearwire will move forward. It also means that any attempt to block the merger has the possibility of significant financial consequences to the shareholders.

This maneuver would also effectively freeze Dish out of the process. While it’s possible that current Clearwire shareholders might be able to get a slightly better deal per share, even that’s unlikely. Right now, it looks like the Sprint–Clearwire merger is going to happen and nothing Dish is likely to do will stop it, short of any lawsuits filed by shareholders or Dish that could delay the deal for months to come.

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