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Clearwire Corporation (CLWRD) Message Board

  • rolfledolf rolfledolf Feb 20, 2013 6:59 PM Flag

    Ronald Barusch Column on CLWR in Feb. 20 Wall Street Journal

    This provides some clarity as to how muddy the whole situation is. Bottom line, it seems, everybody's in a tough place right now as the complicated Sprint-Clearwire ownership situation is a nightmare waiting-to-happen that's happened. Regardless, the solution would seem to be to throw money on the deal and make everybody happy or at least happier.

    Remember Clearwire? Sprint S -1.86%, which already owned a majority of Clearwire, agreed to buy it in December for $2.97 per share. That deal is subject to the approval of the minority shareholders. Last month Clearwire revealed it had received a competing proposal from Dish to buy spectrum and enter into other operational agreements. At the same time, Dish would also make an offer to buy the Clearwire shares at $3.30 each, with the understanding that it would end up a minority shareholder in a company controlled by Sprint.

    The unusual Dish bid leaves the Clearwire board in a complicated situation. And two deadlines loom next week that could add to the board’s burden as well as pressure all three parties to come up with a deal.

    Those deadlines arise from the commitment Sprint made at the time of the merger agreement to provide up to $800 million in debt financing for Clearwire to build out its wireless broadband network. The intention was to dole out that $800 million monthly over a ten month period.

    When Dish made its proposal, it said it would pull its offer if Clearwire took any of the Sprint financing. So far, Clearwire has refused to take the first two months.

    It’s easy to understand Dish’s objection. The notes Sprint would buy would be convertible into Clearwire stock at $1.50 per share, less than half the price that Dish has offered to pay.

    Clearwire will lose the third $80 million tranche of that financing if it doesn’t notify Sprint it is taking the money by next Tuesday. That means Clearwire would have passed on a total of $240 million of the funds it needs to build out its network .

    In addition, Clearwire is facing two days later another deadline to reach an agreement with Sprint on the accelerated build out of that network. That deadline was originally scheduled for the end of January, but the two extended it. If they fail to meet that deadline, Clearwire would lose the last three months—another $240 million– of Sprint’s financing.

    Sprint could extend either or both of next week’s deadlines. But it can also use them to pressure the Clearwire independent directors to begin accepting the Sprint financing.

    Clearwire’s independent directors are in a bit of a box for a number of reasons. Even if they were ready to accept the Dish proposal and its alternative financing, it cannot do so until its shareholders turn down the Sprint deal. And Clearwire hasn’t even mailed its proxy statement, so the shareholder meeting is well over a month away.

    But that is just the beginning of what may be unprecedented complexities for the Clearwire directors which arise out of the nature of Dish’s unusual proposal.

    In every deal in which a controlling stockholder buys out the public shareholders, the board forms an independent committee to negotiate on behalf of the public shareholders. Clearwire did exactly that in responding to Sprint’s deal.

    But Dish’s proposal throws a monkey wrench into that normally clear loyalty to the public shareholders: Clearwire’s independent committee will also have to protect the interests of Sprint.
    Here is why. The Sprint and Dish deals are apples and oranges. Sprint is buying the entire company. Dish wants to buy spectrum and enter into commercial arrangements with Clearwire. Since Sprint has said it will not sell into the DISH $3.30 tender offer, as the directors negotiate the spectrum purchase and commercial arrangement, it is negotiating on behalf of a company in which Sprint is likely to be the majority stockholder.

    Think of it this way: what if the directors were to ask Dish to increase its proposed tender offer price by 10 cents per share in return for a reduction of the spectrum purchase price (so that Dish would be spending, in total, the same amount)? If the directors solely represented the shareholders selling into the Dish offer, they should do that. But surely Sprint can’t be left with unfair amounts of value leaking out of the company.

    Moreover, the legal standards applicable to judicial review of the two deals would be different. The Dish deal would likely be governed by the business judgment rule. The business judgment rule is a presumption that generally prevents judges from second guessing board decisions as long as they met certain basic criteria. A Sprint merger will be judged by the entire fairness rule because it is a transaction with a controlling stockholder. That means that if a case challenging the Sprint deal goes to trial, the judge will need to make his or her own judgment as to whether the Sprint deal is fair.

    What do the Clearwire independent directors do? Ideally, they probably would like to see a three way deal among Sprint, Dish and Clearwire.

    But if Sprint or Dish won’t play, here is what I would suggest if I were the Clearwire independent directors’ lawyer. In terms of the commercial arrangements with Dish, the directors should be sure that those are on terms that are fair to Clearwire (and therefore Sprint). That is not an easy judgment to make because although investment bankers will opine on the fairness of financial transactions like a spectrum sale, they do not opine on commercial arrangements. (I might suggest hiring additional consultants for this purpose.)

    Once the commercial side of the transaction is fair to Clearwire, I would tell the independent directors they are then free to negotiate for any premium above that to increase the amount payable to the non-Sprint holders, even if Sprint objects to the deal. After all, Sprint can always compete by topping that price.

    All three parties are highly incentivized to not let this play out to an end game and instead come to a three-way deal. Clearwire needs a relatively quick resolution so that it can draw on financing for its build out. DISH would undoubtedly rather not be a minority holder of Clearwire and instead just resolve which assets it is buying. And Sprint does not want to own a Clearwire with complex commercial relationships with DISH unless they are on terms that Sprint has negotiated.

    Next week’s deadlines could put pressure on everyone to reach a deal. If not, though, Clearwire will need to limp along without a least some of the financing unless Sprint extends the deadlines. And the directors of Clearwire will continue to struggle with their unusually complex duties.

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    • best overview in quite awhile...ronald's thoughts are certainly provoking...and makes me wonder aloud on how much right brain or whole brain power is being used by mccaw,stanton and gorton as they muddle through this. they must have known the complexities of the deal...or as trump wrote, the art of the deal....stanton was a m & a hero back in the day and ergen is no slouch either...for a company that was trading not thta long ago for .83 a share, old clwr has risen from the depths and seems to be the center of attention now...can mr stanton take this across the finish in grand style for his loyal clearwire common shareholders?

    • Thank you for the post, very well written incompasing many of the aspects which this message board has touched on through a number of posts.

      The one comment which stood out for myself was "...Sprint can't be left with unfair amounts of value leaking out of the company". That presumes two things, first that Clearwire is not an independent company with independent management that can decide if a DISH deal is a leakage of value or a capture of value for the minority share holders. Secondly, it concisley points to what the minority share holders position is with the Sprint offer, that is a much too low of offer that let's value leak from our investments. This is further supported by the fact that Sprint will not sell its shares to DISH at $3.30 per share, however expects the minority holders to sell at $2.97 per share! Sprint will have a very difficult time justifying that position during an entire fairness review.

      At this point, it appears that the Clearwire BoD's best option is to separate the service and spectrum sale discussions (by simply deferring the former) and begin maximizing the spectrum value through competitive bidding. This will align all the share holders interest as any sale not to Sprint is compensated by revenue returned to them as a share holder and any purchases by Sprint will essentially be at a discount at the level of current share holdings.

      Although Sprint would not be happy with this solution as it would not allow them to avoid competitive bidding for the assets, it would be the fairest and simplist solution to implement. This however will require a court order freeing Clearwire of its current Sprint imposed restrictions and/or prior agreements.

      The other solution is as Spok suggests, but what are the chances of Hesse putting down the ego stick? Maybe we will see Son announce that Mr. Hesse-son has decided to spend more time with his family!

    • Well Written. Clearly, all players are incentivized by the very low price offered by sprint for clearwire assets, net of debt, that are worth much more. Those players are dish, softbank, and clearwire's most significant minority sharehholders who are truly shareholders first and not pseudo-majority shareholders who are aligned with sprint (intel/comcast).

      Overshadowing all of sprint's heavy-handedness is the simple fact that the aggregate of minority shareholders will reject their offer, plain and simple... especially given that dish stands ready to pay more. A three-way agreement would seem, on the surface, to leave public shareholders on the cool side of the fence, but not if they stand ready to reject anything they don't like at the ballot box and both sprint and dish are keenly aware of that. They would need to draw bigs like Kellett and Crest into any such negotiations or risk seeing this thing become 5 times the hairball that it is currently.

      In the end, however, everything that has happened since sprint first bid it's ridiculous $2.97 offer reflects one, simple, undeniable truth... that clearwire is much more valuable than that and others want a piece of it if it's going between $3 and $4 a share.