Sprint is taking on some starry-eyed activists.
The company, which is being acquired by Softbank of Japan, is offering $2.1 billion for the 48 percent of Clearwire that it doesn't already own.
Sprint's offer of $2.90 a share for the Clearwire stake, which represents a 5 percent premium to the company's closing price on Wednesday, won't satisfy uppity investors who want Clearwire to seek other options for its storehouse of wireless spectrum. Sprint's control limits their power, but the activists could yet elicit a sweetener.
Mount Kellett Capital Management and Crest Financial together own just over 14 percent of Clearwire. They sounded the alarm last month about the company possibly selling on the cheap to Sprint. Mount Kellett says AT&T bought somewhat comparable spectrum for about 38 cents per MHz-POP, a common industry measure of the number of people covered by the bandwidth. By their reckoning, Sprint should be paying at least four times as much for Clearwire.
Though they would appear to have little clout, given Sprint's 52 percent stake in Clearwire, the minority owners aren't being entirely quixotic. Sprint still needs more than half of the other shareholders to sign off. And while Softbank may not yet be in control of Sprint, the Japanese company seems eager to embark on its ambitions in the United States. Clearwire's spectrum is an integral component.
Sprint, nevertheless, retains the upper hand. Clearwire's operating loss for the first nine months of the year exceeded $1 billion. While heavily indebted, Clearwire also desperately needs to roll out its next generation cellular network to keep up with rivals. That means its financial position is grim and getting worse. And with Sprint ultimately in control, there seems little chance of auctioning Clearwire's spectrum - as the activists have urged - or selling equity to raise cash.
That means the only real option is to sell the company. For many reasons, Sprint is Clearwire's natural partner. With a bid on the table that's nearly three times where the stock was trading this summer, Clearwire's minority owners can't easily dismiss it. They can fight, but won't get anything close to quadruple what has been put forward. They are, however, just enough of a nuisance that it'll probably cost Sprint a little more to seal the deal.
Robert Cyran is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
