What Clearwire Shareholders Are Mulling Over This Weekend

| About: Sprint Corporation (S)

Clearwire (NYSE: CLWR) shareholders this weekend are mulling an offer from Sprint (NYSE: S) to buy out the remaining stake it has in the company for $2.2 billion. For the past few months, reputable players on both sides of the issue have been laying out the pros and cons of the proposal, and I expect they will continue to do so as the shareholders ready to vote on the issue on Tuesday.

Sprint's offer amounts to a per share price of $2.97. Sprint wants to buy the remaining roughly 49% it has in the company as part of a broader effort to be acquired itself. Japanese-based SoftBank last fall proposed buying Sprint for about $21 billion. Acquiring Sprint, the third largest wireless carrier in the U.S., would be a boon for SoftBank's effort to tap the U.S. wireless market.

Just when Clearwire's shareholders were getting used to the idea of being acquired, albeit through Sprint, by a Japanese company, Dish Network (NYSE: DISH) stepped into the fray. In January, it offered to buy Clearwire. Seemingly in an effort to show he came to play, Dish CEO Charlie Ergen significantly upped the ante with an offering price of $5.5 billion, or $3.30 a share.

So, now Clearwire is in the enviable place of being an industry darling. The offers from Sprint and Dish are the largest its shareholders have ever been presented with over its spectrum.

These are some of the things they will be mulling over ahead of Tuesday's meeting.

Higher Value

While Dish's offer is higher than SoftBank's, Clearwire shareholders will be thinking about several players who've said that the price should be even higher. One of those is a former commissioner of the FCC. Dr. Harold Furchtgott-Roth co-authored a report with the Analysis Group that summed up Sprint's proposal as "seriously" undervaluing Clearwire's spectrum. Submitted by Clearwire minority shareholder Crest Financial Ltd. in March, the report concludes that the value of the spectrum is worth more. Based on that, the per share price should be between $9.54 and $15.50.

To get an idea about how valuable Clearwire and its spectrum have become, consider this. A year ago, Clearwire was trading at $1.06 a share. Now it is closing in on a 52-week high of $3.49. The main catalyst for this sharp increase stems from all of the interest it has garnered from larger tech companies looking to increase their market share in the sector.

The 5% Owner

Crest Financial, which owns 5% of Clearwire, has sued the company and Sprint to block the deal between the two wireless providers. Clearwire shareholders must also consider claims it is making about how their rights as shareholders may be infringed upon by SoftBank.

Crest Financial is trying to warn shareholders that statements made by SoftBank chief executive Masayoshi Son demonstrate he has told shareholders that if they reject the Sprint-Softbank merger, "SoftBank and Sprint intend to use Sprint's position as Clearwire's majority shareholder to make decisions regarding the future of Clearwire that are in the best interests of only Sprint and SoftBank." What's more, according to Crest, is the worry that the decisions will not be in the best interests of all Clearwire shareholders.

"If Clearwire's shareholders reject the Sprint-Clearwire merger as we expect, Crest will aggressively protect its rights as a minority shareholder in Clearwire," according to the Crest statement.

Better Offers May Not Come

Clearwire shareholders must also consider that Sprint's $2.97 offer may be the only offer to come from it. While there was banter that Sprint may increase its offer to match Dish's, that has not happened. To put it in perspective, Clearwire's board of directors had the following to say about Sprint's offer. It is a:

  • 130% premium to Clearwire's closing share price on Oct. 10, the day prior to speculation regarding Clearwire's involvement in the SoftBank-Sprint merger negotiations;
  • 40% premium to the closing share price on Nov. 20, the day before Clearwire received Sprint's $2.60 per share initial non-binding indication of interest;
  • 31% premium to the price received by Google for its Clearwire common stock on March 1, 2012; and
  • 117% premium to the price received by Time Warner for its Clearwire common stock on Oct. 3.

Proof is in the Pudding

Shareholders will also be thinking about how genuine Dish's offer is. Ergen's bid for Clearwire is not being taken seriously by many investors. His reputation for being a dreamer and risk taker precede him. His lack of detail in funding his acquisition of Clearwire has also led to more questions about his bid.

For now, Ergen's fate is in the hands of Clearwire shareholders. For shareholders of all the players in this saga, the stakes are clearly high. No matter the outcome, Clearwire will benefit the most because considering its shaky financial state can't help but to be boosted by a takeover.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.