Exclusive: Softbank caps Sprint's Clearwire bid; investors want more
NEW YORK (Reuters) - Sprint Nextel Corp's $2.1 billion offer to buy out Clearwire Corp appeared to be running into trouble on Thursday, as some shareholders said they wanted more money while Softbank Corp set a cap on how much Sprint could pay.
Sprint, which owns 50.45 percent of Clearwire, offered $2.90 per share for the rest of the company and said it would also provide interim financing of $800 million to the cash-strapped company. Any deal would need approval by Softbank, which has agreed to buy 70 percent of Sprint for about $20 billion.
Clearwire shareholders, who together hold about 7.6 percent of the company, criticized the Sprint offer on Thursday, with some saying that the No. 3 U.S. wireless carrier should raise its bid to at least $5 per share. Holders of at least 24.8 percent of Clearwire's outstanding stock, other than Sprint, need to approve the deal.
Clearwire, which is reviewing the Sprint offer, saw its shares jump almost 15 percent on Thursday to $3.16, suggesting investors expected a higher price.
But Softbank has told Sprint that it would not consent to any Clearwire bid higher than $2.97 per share, two sources close to the matter said. The threshold is the same price that Sprint recently paid to buy a small stake from Clearwire founder Craig McCaw's Eagle River Holdings LLC.
Sprint, Clearwire and Softbank declined to comment on the details of these discussions.
For Clearwire, the deal is one of the few options it might have to survive in the long term. The company needs to raise more financing to upgrade its network and to keep the business afloat. It has said that it has enough money to last it until the third quarter.
Stabilizing Clearwire is also in Sprint's interest, which not only has a majority ownership of the company. The hurdles Sprint is running into highlight the complexities it faces in trying to take on its larger rivals, Verizon Wireless and AT&T Inc. A deal would also bolster Sprint's network and give the carrier full control of Clearwire's substantial spectrum.
The timing of Sprint's current negotiations with Clearwire is being driven by Clearwire's uncertain liquidity position, said the sources who asked not to be named because the discussions are private.
A third source close to the situation said Clearwire is also in talks about other strategic alternatives besides the Sprint offer. The person did not give details about what those alternatives were.
INVESTORS GRIPE, SOFTBANK SETS CAP
Several Clearwire shareholders on Thursday said they were dissatisfied with Sprint's offer.
Crest Financial, which owns more than 3 percent, said it "intends to take whatever actions it can" to protect Clearwire shareholders against "unfair dealing by Sprint and other parties."
Even before the Sprint offer was formally announced, Crest had filed a lawsuit on Tuesday against Clearwire and Sprint to try to thwart a deal after reports emerged about discussions between the companies.
Another shareholder, who declined to be named, told Reuters in an interview that an offer in the $5 per share to $8 per share range would be more acceptable to investors.
"This deal should happen. It's good for Clearwire. It's good for Sprint. $2.90 is not the right price," said the person who asked not to be named due to a lack of authorization to talk in public about investments.
Chris Gleason, a managing partner of Taran Asset Management, said "$5 to $7 is a fair range."
"You're at $5.30 before you start being real," said Taran, who owns about 3 million Clearwire shares.
But Softbank, which holds the key to the deal, is not willing to go that high, according to the sources.
Softbank founder Masayoshi Son's $2.97 per share threshold for the bid comes as Clearwire's shares have risen over the past couple of months on investor expectation of the deal.
The Eagle River purchase represented roughly a 130 percent premium to where Clearwire's stock had been trading before news of Softbank's deal with Sprint.
Moreover, if Sprint were to pay any other shareholder a higher price than the Eagle River deal, it would have to increase its payments to Eagle River to match the higher price.
The final outcome of the deal, however, remains unclear.
Clearwire's other minority shareholders include Intel Corp and Comcast Corp, which own about 12.4 percent between them.
Sprint has been in discussions with those companies about purchasing their shares, sources have said previously.
Intel said on Thursday that it was evaluating Sprint's offer, while Comcast declined to comment.
Analysts said Clearwire could also afford to hold out for a higher price.
"With a year of liquidity on the books and the alternative of raising additional equity or refinancing debt at this level, Clearwire is hardly without options, and we don't see why the company would necessarily jump at the $2.90 bid," JPMorgan analyst Philip Cusick said in a research note.
Pacific Crest analyst Michael Bowen said he believes that Sprint "should not pay more than $3" per share for Clearwire, but he added that the company may be pressured into eventually increasing its offer to $3.50 per share.
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