I know I risk sounding redundant... I've said it before, I'll say it again:
1. Softbank is tendering for control of sprint. The deal is likely to consumate.
2. Softbank's primary financier would not provide the funding to buy sprint UNLESS sprint had more than
50% control of Clearwire. That revelation made it clear that CLWR was a primary focus of the deal.
3. To get 50.8% of clearwire stock, sprint made a deal with Craig McCaw. Sprint did NOT want MORE
than the 50.8% of stock (unless somebody is willing to GIVE it away) because:
a) It has what it needs from clearwire for the time being... the LTE buildout and clwr has the cash it needs
b) Sprint can't afford to buy out clearwire and still have the money to do Network Vision.
c) Sprint wouldn't WANT to own more of clearwire if the Softbank deal somehow doesn't go through.
4. To get McCaw to support the deal, sprint had to give him ~ $2.97 a share and a "make whole"
agreement that is essentially a "call option" that assures that McCaw would get the difference if Sprint
subsequently tenders for all clearwire shares for MORE than $2.97. These "tea leaves" are saying:
a) Sprint convinced McCaw that the softbank acquisition would pay off for him via the make-whole.
b) McCaw liked what he saw enough to help keep the sprint/softbank deal moving forward.
c) McCaw thinks $2.97 is too low and the make-whole provides assurance that he expects more.
5. There's no evidence of any other major shareholders liquidating shares. There's evidence that others
were approached ahead of the McCaw deal so they "appear" to like their prospects for a buyout next
6. Sprint does NOT have sufficient spectrum to compete with VZ and AT&T and softbank's goal is to
ultimately compete on equal terms with the big 2. Not only is Clearwire the only entity with sufficient,
nationwide spectrum to accomodate that goal, but clearwire's spectrum and TD-LTE protocol are exactly
the same RF frequency and protocol that softbank is currently deploying in Japan.
7. Sprint is already joined at the hip with clearwire operationally. The Network Vision deployment that has
been implemented thus far is fully reliant on capacity augmentation by clearwire in geographies where
sprint's capacity is most dramatically inadequate. The US cellular acquisition addresses less than 15%
of the geographies where sprint's current capacity is most dramatically inadequate.
8. Dish's spectrum is likely tarnished due to the need for sufficient guard bands and is also a relatively
high frequency making it less discernable in terms of propagation characteristics from clearwire's
spectrum. Even if dish's spectrum were somehow acquired by S/SB, it would still leave sprint with
substantially less overall spectrum than VZ/AT&T. The most likely outcome for Dish appears to be a
sale of their spectrum to DT/T-Mob, who need it more than S/SB needs in in light of clearwire... or a
spectrum-hosting arrangement that would allow dish to deploy a video-distribution strategy.
9. Given that sprint boosted it's stake in clearwire... and dish apparently bought a lot of clearwire debt...
it certainly lends credibility to the notion that clearwire is a target in the industry.
In summary, it's hard for me to imagine what is holding this stock below $2.97 a share. Any #$%$ who is ambitious enough to read the tea leaves should be able to see this thing poking him right in the eye cheap. The RBC guy and the Mount Kellett consortium would appear to agree.
... and the class-action lawyers that are circling their wagons.
I've never seen more of an easy read on a takeout than the one that surfaced when McCaw caved to sprint...
... there is NO QUESTION that softbank wan't clearwire's spectrum very, very badly and softbank's Mr. Son has NEVER been one to quibble with a board of directors that he doesn't control.
Good post. The 1-5 points are the reason for considering CLWR a buy despite not knowing when or having more details about the SB-S deployment plans.
Points 6.-7. depends on time frame and how SB-S will go about deployments. S could make greater use of small cells and free up and acquire a bit more spectrum. S has been accumulating US Cellular, and expects the AWS band. They are rolling out 1.5-2 million small cells if you count in-home femtocells. They plan to shift to greater use of outdoor small cells in 2013-14. These moves do not allow a huge push into video or relieve longer term needs, but that makes the timing for extensive roll out of LTE into 2.6GHz a question of when SB-S will plan to wage a war on capacity/video. That could occur as soon as the approval or be 2-3 years from now.
8. The S-Band spectrum is better at propagation but it does have problems. Using guard bands is common. Since the disadvantages of the 2.6GHz band can be overcome when deployed similar to Softbank Japan's TD-LTE network, it becomes a matter of dedicating the capital and having a comprehensive plan that results in increased subs with high bandiwdth devices and applications in their hands.
I agree that the stock is likely to move up, most likely to more than $3. However, that is still waiting for the events to unfold which may take well into 2013. The reward/risk looks good but there might not be much to cause a move higher for months. The TA looks improved simply by holding at this price level for several days. I've said buy on a pull back or a break out but neither has occurred. However, the longer it maintains this price the greater the odds it will break to upside due to the circumstances you outlined.
Nice read Spok!
I'm of the opinion that SB will purchase CLWR's remaining shares with the $5 billion in Sprint stock they will purchase as part of the S/SB deal. Why else buy 70% of Sprint when you only need to purchase 51% for control.
What is your opinion on how the purchase will be consumated. And if you don't mind, what is your opinion of the timing of the CLWR purchase?...how long after the S/SB deal closes will they purchase CLWR?
It is probably true that “Softbank's primary financier would not provide the funding to buy sprint UNLESS sprint had more than 50% control of Clearwire” but I think Softbank’s intent was always to get 2 for 1 (both Sprint and CLWR for the price of one).
“Softbank's financier required sprint's 50.8% controlling interest to ENSURE that another buyer couldn't make a viable bid for clearwire” and that is exactly the point that Softbank could leave CLWR hanging in this state forever effectively owning both companies without actually owning CLWR completely. SB-Sprint is practically the only wholesale customer Clearwire has so there is very few options left for Clearwire.
... it wasn't "probably" true, it was "absolutely" true, which is very strong evidence that softbank regarded sprint/clearwire as a "two-fer". The whole reason WHY sprint had to scramble for the additional shares was because the softbank deal had leaked and they were short on time to satisfy the financier.
Clearly, the financier saw clearwire's spectrum as the primary source of pure value in the transaction and if sprint knew for certain that the softbank acquisition was a regulatory given and they had the $8 billion in hand today, then clearwire would ALREADY be tendered.
Secondly, if you study Softbank's Mr. Son carefully, you'll notice that the last thing on earth he wants to spend his time on as he develops sprint into a "big 3 contender" is to bicker with John Stanton and Erik Prusch on every little contractual detail for use of all that 2.5ghz spectrum that he's dying to replicate as part of his plans to rule the 2.5 ghz world... especially since he already runs TD-LTE on 2.5ghz spectrum in Japan.
Thinking that Mr. Son want's Stanton and Prusch in his way is like thinking that a few mosquitos are going to get in the way of your free trip to Tahiti... it would be way out of character for him to share control of all that beautiful, cheap, contiguous, world-data-standard spectrum with anyone.
I agree with most of what you've said but my only question is that what will McCaw do if someone like Msft comes in and buys the remaining 49.2% equity stake of clwr plus remaining voting rights from the BOD + intel + comcast for a certain attractive price - then he can't be made whole but will be in the hole. His "make whole" clause is only with respect to sprint's future purchase(s). My point is what is the rock solid assurance that he could have received?. Any idea?.
Sentiment: Strong Buy
... a buyer with the intent of controling it's acquisition target would buy up a minority holding in a company if the majority holder had ideas of it's own aside from that buyer's interest.
Softbank's financier required sprint's 50.8% controlling interest to ENSURE that another buyer couldn't make a viable bid for clearwire. Thus, it could only occur if such a buyer were working in partnership with sprint/softbank in some way.
McCaw sold for $2.97 and the make whole option instead of something greater than $2.97 outright because Sprint had to get it done and has very little cash outside of what it needs for Network Vision. Sprint's finances dictated that it be done this way, and McCaw had to be convinced that it would be worth more than $2.97 in the end or what would be the POINT of having the make-whole agreement in the first place?
Again, the tea leaves line right up like soldiers with this. There have been enough things that have been done with easily-read intentions that there are few alternative outcomes, IMHO.
IMO, it is pretty easy to come up with a counter to each of your points; most of which would be a negative for CLWR. However, since most have been discussed at length on this board, I will not repeat them.
I am curious if you still think CLWR might be a 10-bagger or even a 3-bagger from these levels?
... not the least of which are their precarious finances and dependence (albiet "inter"-dependence) on sprint.
Now that clearwire is obviously a "target" by virtue of it's valuable and appreciating spectrum resources, many of their weaknesses are diminished by virtue of the fact that a buyout negates them via the resources of the buyer. Thus, this company "should" be trading more on the value of it's assets net of debt... which on a PPS basis, is substantially higher than the current share price. I believe McCaw's make-whole clause was struck with full awareness that it's higher than $2.97 a share as well.
I've said for some time now that sprint's captive arrangement with clearwire means that shareholders shouldn't be expecting to shoot the moon with this stock... $7 to $10 a share buyout just aint gonna happen, IMHO... especially since the buyer would still need a lot of cash to bring the potential of clearwire's spectrum to fruition.
But I see a buyout of $3.50 to $5 as very likely. The most likely scenario is that anticipation of such a buyout would drive the stock upward by a buck or a buck-fifty from here and the tender would go off at a 20 to 30% premium to ensure it gets fully tendered. I'm admittedly speculating on the outcome here, but I see this scenario as the "expected value" on a bell-shaped curve of likely outcomes...
... and a smaller "standard deviation" of outcomes being a pretty steep-sloped bell-shaped curve (yes, Virginia, I'm a hopeless "quant").
Exactly. These folks act as if they have some sort of guaranteed bidding war for this company in the mix and acting as if they should count their gains already. People are BLIND, and so life goes on...
Sentiment: Strong Sell