Sprint Approves SoftBank Merger As Clearwire Ordeal Winds Down

by Trefis Team
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An overwhelming majority of Sprint’s (NYSE:S) shareholders voted in favor of a takeover by SoftBank, ending a months-long fight with Dish Network (NASDAQ:DISH) that threatened to distract the company from its turnaround plans. The shareholder vote scheduled for June 25th cemented what was being anticipated for quite some time after SoftBank’s revised offer received the unanimous support of Sprint’s board as well as one of its largest shareholders. Dish then dropped out of the race, declining to submit a counter-bid before the June 18 deadline last week. SoftBank is now left with one last approval to seek from the FCC, which seems very likely given that the merger is only going to increase competition in a duopolistic industry and has already received national security clearance from the government.

The deal with SoftBank will give Sprint’s shareholders about $16.6 billion in cash – a payout that was increased by $4.5 billion in a bid to thwart Dish’s takeover attempt. However, $3 billion of this revised transaction will come from the cash that SoftBank had initially allocated to the new Sprint entity, leaving the carrier with less cash for its Network Vision Plan and LTE build-out. Sprint has however made good progress on its Network Vision plan, removing the cost inefficiencies arising out of running different networks together and improving cash flows. This should help Sprint meet the deficit, as well as fund the acquisition of Clearwire with some of its own cash.

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Clearwire Key to Sprint’s Turnaround

Sprint recently offered an almost 50% premium over its previous bid for the remaining Clearwire shares to win the approval of the latter’s board as well as many of its dissenting shareholders. This has all but sealed the deal in the favor of Sprint, which now has the support of minority stockholders holding almost 45% of the remaining Clearwire shares. With Clearwire’s shareholders hard pressed for time in the face of an imminent bankruptcy, it seems very likely that Sprint will secure the majority it needs for the deal to go through. The improved bid has also caused Dish to back off, leaving Sprint as the sole suitor for Clearwire’s shares.

The reason Sprint went after Clearwire so aggressively is because of its huge spectrum holdings which would have had to be auctioned off to pay the debtors in case of bankruptcy. Sprint’s majority stake-holding would have then counted for zilch, and it would have had to fight with other deep-pocketed rivals such as Verizon and AT&T for Clearwire’s spectrum, making it even more expensive for the third-placed carrier. In the top 100 markets in the U.S., Clearwire has around 160 MHz of spectrum on average, which would give Sprint a boatload of spectrum and go a long way in bolstering its LTE network. Moreover, the two companies already have a deal in place, according to which Sprint will be able to offload 4G LTE traffic onto Clearwire’s planned TD-LTE network.

Clearwire is central to SoftBank’s plans for Sprint as well. The Japanese carrier has experience running a TD-LTE network in its home country, and it plans to bring that expertise to the U.S. market. Being able to run similar networks in two different countries would give SoftBank the scale to negotiate better deals with not only the network equipment manufacturers but also handset companies such as Apple. This would bring about better synergies to the deal and allow Sprint to reduce its cost of operations a lot more, thereby helping it compete more aggressively against the duopoly of Verizon and AT&T. Clearwire’s spectrum would also allow Sprint to continue to offer unlimited data plans for a few more years without the fear of congestion and lower network speeds.

However, acquiring Clearwire means that Sprint will also have to absorb the latter’s almost $3.5 billion in net debt and more than $300 million in operating losses every quarter. But considering that the government’s TV spectrum auctions are years away and Sprint now has the financial cushion of Softbank to make this aggressive move, Clearwire’s spectrum does seem like a very attractive option. With Clearwire’s spectrum, Sprint will not only be able to build out a robust LTE network but also compete more effectively with Verizon and AT&T, who are farther ahead in their LTE deployment plans.

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