Soft Bank Deal Creates Stronger No. 3 in Wireless

Sprint Moves to Consolidate Clearwire Stake

Sprint Nextel landed a partner last week that will pump needed cash to help build out its next-generation wireless network, creating a stronger No. 3 player in the U.S. mobile market.

Last week, as expected, Japanese wireless giant SoftBank agreed to purchase a 70% interest in Sprint Nextel, in a $20.1 billion deal that will give Sprint shareholders $7.30 per share in cash for more than half of their shares and pump another $8 billion into Sprint coffers to help fund the buildout of its planned Long Term Evolution (LTE) wireless network. After the deal is closed, SoftBank will own 70% of Sprint Nextel, with current shareholders owning the remainder.

The deal was praised by analysts who saw it as a boost for the U.S. wireless carrier, helping to fund a network that many weren’t sure it could afford.

And though it was not an original condition of the SoftBank deal, the transaction could fulfill one hope of cable investors — that Sprint purchase the remaining interest in Clearwire it doesn’t already own.

Last Thursday, Sprint agreed to buy Clearwire shares held by Eagle River Holdings, an investment vehicle of cellular telephone pioneer Craig McCaw. According to SEC documents filed Oct, 18, Sprint will pay about $100 million ($2.97 per share) for Eagle River’s 30.9 million Class A shares and 2.7 million Class B shares. The deal will push Sprint’s ownership of Clearwire past 50%, giving it control of the WiMAX provider.

That leaves just Comcast, Intel and Bright House Networks among the companies that invested $3.2 billion in Clearwire in 2008, helping to fund a buildout of its WiMAX network, which was then thought to be the next-generation wireless technology.

Reports last week said Sprint has had conversations with the remaining parties about buying out their stakes, too, but they appear to be held up on valuation.

Earlier this year, Time Warner Cable and Google sold their interests in Clearwire for a substantial discount to their original purchase price. And in September, Comcast set the wheels in motion for what could be a sale of its 13% interest in the company.

As news leaked out that SoftBank and Sprint were in advanced talks, Clearwire shares skyrocketed on speculation that the Japanese company — whose network is similar to Clearwire’s — would make Clearwire a critical component of the deal. That speculation drove Clearwire shares up 70% (92 cents each) on Oct. 11 to $2.22 per share.

Even after the deal was announced on Oct. 15, and SoftBank stated that there would be no changes to Sprint’s current obligations to Clearwire, the stock continued to rise, gaining another 16% (37 cents each) to $2.69 per share. The stock began to lose some of that ground on Oct. 16, dipping 17% (46 cents) to $2.23 each.

For Sprint, the SoftBank deal appears to solve its short-term problem of funding its LTE network build and shareholders receive a nice 44% premium to Sprint’s closing price of the $5.04 per share price on Oct. 10. SoftBank gains a foothold in the lucrative U.S. wireless market — estimated to generate about $170 billion in revenue annually — and vaults the company from the third largest mobile carrier in Japan to third largest in the world with about 96 million customers.

Sprint CEO Dan Hesse, who will remain in that position after the deal closes, added at the press conference announcing the deal that the combination creates a stronger No. 3 mobile operator in the U.S.

“This is a transformative transaction for Sprint that creates immediate value for our stockholders, while providing an opportunity to participate in the future growth of a stronger, better capitalized Sprint going forward,” Hesse said in a statement.