Thursday, June 17, 2010

Will Sprint Buy the Rest of Clearwire?

TownHall Investment Research Analyst Gerard Hallaren says Sprint management has made comments that leading some investors to believe the company iss actively considering a bid for the rest of Clearwire.

"As best we can tell, the speculation is based on a perceived desire by Sprint control its own destiny by owning its 4G network and on synergies created by combining the two companies," says Hallaren.

Some people will contest the notion, as it flies directly against the rest of Sprint's recent initiatives to outsource operations that are not directly customer facing, and concentrate on marketing and customer-facing operations. It is worth noting, however, that Sprint has not acted to divest its actual ownership of facilities, with the exception of tower sites.

The Sprint "4G" marketing platform seems to be getting a lift from the HTC Evo launch, and that appears to be prompting the speculation about whether full ownership of Clearwire (Sprint now owns 57 percent) would add value.

Despite some possible strategic logic, namely the ability to use the Clearwire network anyway it wishes to, there would be obstacles.

Given Sprint's weak financial position, a dilutive equity deal would be required. Hallaren suggests a reverse takeover might be considered.

One issue is that the other Clearwire joint venture partners bought most of their stock at far higher levels, around $17, or $10 higher than the current price.

The public owns only 10 percent of Clearwire, while Intel (11 percent) and Comcast (nine percent) are the largest holders after Sprint. Time Warner owns five percent, Google three percent, Brighthouse one percent, Eagle River four percent.

Perhaps the bigger issue is the different business models. Clearwire is mostly a wholesale provider, though it has some retail operations. Sprint really is a retailer with some wholesale operations. It isn't clear how much more Sprint benefits from increasing its 57-percent stake.

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