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Clearwire Corporation (CLWRD) Message Board

  • fineinvestor fineinvestor Feb 1, 2013 8:24 PM Flag

    Clearwire SEC filing SC13E3 (Long Winded)!

    After the first read of the Clearwire SEC filing SC13E3 (aka hence forth as the K9(A)stronomy report), it strikes me as being factually clever in presentation.

    The first item to note is the Centerview chart “Precedent Spectrum Acquisitions” showing Clearwire as acquirer and the target being Sprint Spectrum for .255 / MHz-pop in May of 2008 (the same they now want to buy back for .21/ MHz-pop ). It reflects the price of spectrum contributed to Clearwire for its controlling stake (all those “B” shares Sprint has) p.26

    Next in the Evercore report page 13, AT&T purchase of WCS 2.3 GHz spectrum was at .35/MHz-pop in August 2012. But has a very long footnote(3) that says some of it (AWS) was valued at .69 per MHz-pop and assumes .00 (zero) for the WCS C&D skewing the average price lower, however if they assume the opposite valuation the WCS spectrum would have been valued at .39/MHz-pop. The NextWave purchase uses the same assumptions and comes up with .21/MHz-pop for a much smaller and obviously less valuable chunk of contiguous spectrum than the Clearwire spectrum…making the NextWave block less valuable on a MHz-pop basis. Just a few additional comments on the Evercore page 13 chart; Why put a box around the spectrum price assumed for the Eagle River sale, no one there said they were looking out for my best interest and that price changes anyway if the buyout offer is higher? The red box uses pricing in the past when pps was $1.30 for Clearwire, why not use a price in the past when Clearwire had a secondary offering at $7.33 per share before the Hesse price destroying activities took place? Finally why put 3 of the lowest 4 price bars in green…did I miss something? It seems this chart was put together more to support a low price per share acceptance than it was to try an fairly value assets for the BoD.

    The very next chart is simply adds little to this conversation as the "Preliminary Premiums Paid Analysis" is a RESULTS table for other deals, maybe in other industries and with certainly other conditions as no one has sold this large of monolithic block of spectrum during a time when data usage rates are exploding as they are now. Being a RESULTS table of past deals, you should certainly not use it to drive current/future deals.

    What do the analyst price targets have to do with how the spectrum should be valued? At best they are an opinion that reflects a discounted cash flow of an on-going business (which this won’t be) with depressed asset pricing. It is simply focusing your attention on share price rather than more appropriately on the spectrum price using MHz-pop.

    You might ask why this is being done within this report….well the "Ownership Analysis" chart shows how unlikely it is Sprint will get a super-majority vote without picking up a significant number of “Other Shareholders” who represent 36.5%...focus on spectrum pricing, business operations (the network agreements and hardware) can be valued separately.

    Sorry, but the last chart “Trading Comparables – Implies Spectrum Values” is a real kicker. Can you possible find two poorer companies to compare with for a spectrum asset valuation? Globalstar and LightSquared…really…two low power, non-terrestrial spectrum satellite operating companies…really? If they are the right guys to compare with, maybe Sprint should snap them up!

    Now the Centerview dog report is better, but it has very similar flaws concerning what is presented and what it wants to draw your attention too.

    Stating it clearly, focus on spectrum pricing using MHz-pop, that is how shareholders will realize a fair and understandable value for their long term investment. Pay close attention to the companies they use for comparison and ALL (did I say ALL) the footnotes associated with how previous spectrum sales or holdings are being valued. The footnotes are critical for understanding, as that is how Enron duped so many analysts for so long and robbed many of the value in the corporation.

    Final comment…it saddens me these reports seem to fulfill the obligation the Clearwire BoD has in the eyes of Delaware business law by soliciting outside advisory, however they appear to support more of a lower enterprise valuing range rather than expose information that would help the BoD properly price the spectrum. It would add much understanding and value, if a market review that included things like information on data usage, growth rates, spectrum capacity and saturation level by wireless operators were included.

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    • It looks biased and certain points can be argued that way. However, the norm for valuing a company facing liquidation or takeover is based on current available metrics. Spectrum valuation for 2.6GHz has few comparisons since the vast majority of the spectrum has been held and accumulated through Sprint and Clearwire. The puts the comparable spectrum into the other spectrum you mentioned. Spectrum's value is more accurately made by what is paid for closely similar spectrum and how it is being used.

      Take the examples of NextWave, Lightsquared and other companies that had initial funding that went bust: the spectrum held by NextWave had, a few years ago, high expectations for deployments based on a grand plan for a vertical integration of chipsets, video, and network equipment and device exploitation. The company ran through their financing and could not find takers while it was still in operation. Therefore, the spectrum was a remaining asset of the failed operation that was sold at a disadvantage of what might be expected if it had been developed into a profitable network. Isn't that more like Clearwire's situation than that of a sustained mobile operator that is able to afford spectrum because they will more quickly, cleanly put it to work making revenue that helps sustain the re-investment cycle?

      Clearwire's spectrum is proposed to be acquired by Sprint-SB or DISH at a 'distress sale price level' because Clearwire is a distressed asset company. The core argument of the 13e is that regardless of all else, Clearwire will run into a capital shortfall of about $4 billion. That figure can be whittled down and 'what if' multiple operator scenario could change that. However, that is the same basic scenario that has been part of the business plan from 2008, and which Clearwire management has said they have pursued vigorously in the past with the results now on the table - the best choice was determined to be Sprint's offer.. with DISH's offer still open for consideration, but that is not all that different in its conclusion of valuation.

      The basic conclusion is Clearwire must sell because they are underfunded and indebted. The new network will be costly because it has to reach a competitive scale. It cannot be just a small network start-up due to the debt and advanced level of competition.

      The best course for invertors is to wait imo. The stock can go up because to clear out investors Sprint-SB or others can likely be forced to pay a slight premium over the distress sale price outlined in the report. That is a 'hold up' of a failed business value of spectrum.

      • 1 Reply to teamrep
      • The only problem with that I can see is you are talking about the companies and this is about the assets. The same (no not similar, the same) spectrum was sold for .28/MHz-pop by Sprint to the new Clearwire Company initially and received most of controlling stock it now holds in return. I don't believe spectrum has become more available since then and I know it wasn't part of the NetworkVision then.

        Since the conversation rightly revolves the assets, the majority of the debt Sprint is offering to assume will be recovered in the operational hardware and lease agreements already in place where they will see an immediate return relative to starting again from scratch building an LTE network. I believe that one of the reports (I don't remember if its the astrology version or dog version),shows about $1.5B in operational gains and I believe about $1B in synergies. All of those assets seem to be getting away in the conversations.

    • On a second reading of the Clearwire BoD advisory reports, I would like to comment on a few additional items;

      PG. 25 “Analyst Price Targets” Shows Evercore (the other special committee advisors) as having a Hold recommendation for Clearwire on Oct. 2012…$1.75 per share. Wow, you have a company give you an opinion/conclusion of what they think you should do as a BoD special committee member when they are advising their clients that you are only worth $1.75 per share? Would any rational person expect them to come to the BoD with a report that said Clearwire is worth more than their recommendation to their other paying clients? Smells an awful lot like recommending credit default swaps to retirement funds one day but telling the other side of your firm these things are really poor quality and we should short them.

      Second Evercore report titles BoD Presentation Dec. 12, 2012
      Pg. 22 Appendix (Research Analyst Summary” from Evercore Partners report;
      Chart again shows an Evercore price target for Clearwire shares at $1.75 using a “Spectrum Valuation Methodology” however has the $/MHz-pop at….. .35/MHz-pop!! SAY WHAT??

      They use .35/Mhz-pop which would imply a total spectrum-only value of $16.45B (47B Mhz-pop times .35/MHz-pop) This is not put together as a high-low kind of chart, it was the spectrum price they were using to justify a particular share price to clients.

      So lets use their own earlier calculation on Pg. 8 “Transaction Overview”

      47,000 PF MHz-pop
      16,182 Implied TEV (.3443 used for time value)
      (6109) Less NPV Spectrum Leases & Debt (no cash from DISH included)
      9992 Implied Equity Value
      1495 # of FD Shares (mm)
      $6.68 Implied Share Price at 12/31/12

      Or calculating using pg. 20 Appendix “Implied Share Price Based Spectrum Valuation”

      16,450 Adj. TEV (47,000 times .35/MHz-pop)
      (1800) Less: NPV Spectrum Leases
      14,650 Net Proceeds
      (4,486) Less Debt 12/31/12
      828 Plus: Cash

      10,992 Implied Equity Value
      $7.34 Implied share Price 12/31/12
      $6.86 Implied share Price 9/30/13

      I put this out so you can do your own work and either check what I found or do your own work with the BoD reports.


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