Reality: A spectrum sale would provide limited liquidity to fund operations, and may create additional challenges.
- The timeframe for closing a spectrum sale would be at least six months after the definitive agreements are signed; would not improve liquidity prior to completion;
- The gross proceeds of a spectrum sale will be reduced by the net present value of spectrum leases, taxes, and distributions; the remaining amount cannot be freely applied to fund operations, as it must be used to acquire replacement assets or repay debt;
- There are restrictions on the total amount of spectrum that can be sold without Sprint's consent; and
- Clearwire could end up in a worse position by selling a premium portfolio, as the remaining assets would be less desirable, and the sale may reduce potential future demand for our network.
ANALYSTS AND OTHER CREDIBLE COMMENTATORS RECOGNIZE THE RISKS TO STOCKHOLDERS ABSENT A TRANSACTION
The proposed transaction with Sprint provides a clear solution to the substantial funding gap Clearwire is facing. Absent the Sprint transaction, Clearwire's prospects of securing the $2-$4 billion in additional funding necessary to continue operations and the LTE build plan are highly uncertain. If the merger agreement terminates as a result of shareholders failing to approve the merger, the remaining Sprint funding would not be available, and without alternative sources of capital we would have to curtail or suspend substantially all of our TDD-LTE network build plan. In such case, we forecast that our cash and short-term investments would be depleted sometime during the first quarter of 2014.
Equity analysts recognize Clearwire's liquidity constraints, and warn investors of the implications: *
- " Shareholder disapproval of Sprint deal could result in a liquidity event ." – Jefferies, April 26, 2013
- " Delays Not Good for Clearwire: The concern is that the complicated scenario surrounding CLWR / Sprint / SoftBank / Dish could delay an ultimate conclusion for CLWR which, given its financial standing, would not be encouraging, in our view." – Stifel Nicolaus, April 25, 2013
- "If Clearwire had rejected Sprint's offer, it would not only have lost the only logical buyer of the company but also put its single largest revenue stream in jeopardy for the future." – Piper Jaffray, December 17, 2012
- "We believe this transaction is in the best interests of both shareholder bases, providing a substantial premium for Clearwire shareholders while finally putting the conflict between the firms to rest ... Clearwire will no longer sit in an awkward position attempting to source additional financing while also building a viable business around the Sprint relationship."
– Morningstar, December 17, 2012As previously stated, Clearwire believes that securing the additional financing to fund the standalone business plan would be challenging, expensive and highly dilutive to stockholders, if available at all. Moreover, Clearwire is required to obtain the consent of Sprint before entering into new financing arrangements other than those agreed to under the merger agreement.