Clearwire Shares Up Again on Sprint Deal

Second Day of Double-Digit Gains

Clearwire stock continued its impressive run on Monday, gaining as much as 28% in early trading after Japanese wireless giant SoftBank officially announced its agreement to take control of Sprint -Nextel for $20 billion.

Sprint-Nextel is Clearwire’s largest shareholder with nearly half of its outstanding shares. SoftBank has said that the Clearwire stake is a critical component of its deal with the phone carrier.

Clearwire shares were priced as high as $2.96 in early trading Monday, up 27.6%, before closing at $2.69 per share, up 37 cents each or 16%. That run adds to a 70% gain on Oct, 12, when news of the deal first leaked out.

SoftBank will invest $20.1 billion in Sprint, consisting of $12.1 billion to be distributed to Sprint shareholders and $8 billion of new capital to strengthen the telephony giant’s balance sheet. Through this transaction, about 55% of Sprint’s current shares will be exchanged for $7.30 per share in cash, and the remaining shares will convert into stock in a newly publicly traded entity called New Sprint. Following closing, expected in mid-2013, SoftBank will own 70% of Sprint’s outstanding shares and Sprint shareholders will control the other 30%.

According to a statement, Sprint will have no obligation to acquire a greater interest in Clearwire, but will still have to adhere to prior agreements with the WiMax carrier.

In a note to clients, Pivotal Research Group senior telecom analyst Steve Sweeney wrote that Clearwire holds valuable LTE (Long Term Evolution) wireless spectrum similar to SoftBank, which could push Sprint to possibly try to acquire the company.

“Given the common LTE technology and 2.5 GHz spectrum between SoftBank and Clearwire, we think it is likely Sprint makes a bid for the rest of Clearwire, which could dilute Sprint shareholders either before or after the SoftBank deal closes,” Sweeney wrote.

What remains to be seen is if Clearwire’s other equity partners will seek to divest of their interests in the company. Time Warner Cable and Google had previously sold their interests at a deep discount and Comcast has taken steps to sell its 13% interest in the wireless carrier, but has not sold its stock.

Time Warner agreed in September to sell its 7.8% stake in Clearwire (46.4 million shares) for $1.37 each or $63.6 million, an 88% discount to the $550 million it paid for the stake in 2009. In March, Google sold its 29.4 million shares of Clearwire for $2.26 each, or $66.7 million, 87% less than the $500 million it originally spent on the stake.

Aside from Comcast, other Clearwire holders include Intel (94 million shares, or 12.6%), Bright House Networks (8.5 million shares or 1.2%) and Eagle River Holdings (34 million shares, or 5%), an investment vehicle for cellular telephone pioneer Craig McCaw.