Sprint to Buy Out Clearwire for $2.2 Billion

Sprint will pay Clearwire shareholders a surprising $2.97 per share, or a total of $2.2 billion, for full ownership of its spectrum.

Sprint and Clearwire are confirming what has been speculated for more than a week: Sprint will buy the remaining shares of Clearwire that it doesn’t already own.

Executives for both companies confirmed the move during a call with analysts and journalists Dec. 17, though at a higher price than initially anticipated.

While Dec. 12 paperwork Sprint filed with the Securities and Exchange Commission suggested that Sprint would pay $2.90 a share, or about $2.1 billion, the final agreed-upon figure was $2.97 per share to non-Sprint shareholders, or $2.2 billion.

While some analysts questioned why Sprint should pay nearly $3 a share for the ailing Clearwire, executives on the call repeated that the sum is a fair one and the result of rigorous negotiations.

"I'll say the board and management team of Clearwire did a very good job, in terms of negotiating for their shareholders. But also at Sprint, we ... made sure we were being fair to both sets of shareholders," said Sprint CEO Dan Hesse.

Hesse described Sprint as "moving rapidly" to strengthen its position as the market's third-largest carrier and an effective industry player, and that "one of the most important contributors to being a strong number-three player is having a strong portfolio of [spectrum]."

Sprint's Long Term Evolution (LTE) 4G network is currently a fraction of the size of those of larger carriers Verizon Wireless and AT&T, and even smaller rival T-Mobile recently agreed to acquire MetroPCS to help boost its spectrum holdings and eventual 4G footprint.

Clearwire owns a considerable amount of 2.5GHz spectrum, which Hesse described as "more useful when augmented by other [spectrum]." Clearwire's network, he added, "is a case where the whole is worth more than a sum of its parts. It's worth less when broken up, like a pair of shoes or a pair of socks." If a pair of shoes is worth $100, he continued, a single shoe couldn't necessarily be sold for $50.

Moving quickly is also of necessity, Hesse said, explaining the benefits of acquiring the spectrum ahead of Clearwire beginning its planned LTE rollout. "By moving now, we're seizing the opportunity of value creation."

Clearwire CEO and President Erik Prusch called the transaction "a better deal for non-Sprint stockholders," and said that Clearwire shareholders will have the opportunity to vote on the transaction. "It's important," he added, "that everyone is working off of the same set of facts."

Sprint was uniquely positioned for the deal, and Clearwire would not be able to sell to another buyer—if one existed—even at the same price, said Prusch.

"There is not enough capital to fund our plans," Prusch went on, regarding Clearwire's planned LTE deployment, "and it's our responsibility to understand our [alternate options]." Should the deal with Sprint not go through, "we believe that a restructuring is possible," he added.

In connection with the transaction, the companies have also entered into agreements that provide up to $800 million of additional financing in the form of exchangeable notes to Clearwire in exchange—under certain conditions—for Clearwire common stock at $1.50 per share.

The closing of the deal is also contingent upon the closing of Sprint's deal with Softbank, the Japan-based carrier that in October purchased a 70 percent share of Sprint for $12.1 billion—money that has enabled Sprint to fortify its spectrum holdings in support of an aggressive LTE rollout.

"Clearwire's spectrum, when combined with Sprint's, will provide Sprint with an enhanced spectrum portfolio that will strengthen its position and increase competitiveness in the U.S. wireless industry," Clearwire and Sprint said in a statement released ahead of the press conference. "Sprint's Network Vision architecture should allow for better strategic alignment and the full utilization and integration of Clearwire's complementary 2.5GHz spectrum assets, while achieving operations efficiencies and improved service for customers as the spectrum and network is migrated to LTE standards."

Sprint's Hesse added, "At Sprint, we're excited about our future and the momentum that we're building."

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