You’re Surprised That Clearwire Is Down On This News?

A few quick words on Clearwire ($CLWR: no positions), if I may…

CLWR rallied from about $ 1.30 to about $ 2.30 in recent weeks on hopes that Sprint ($S: long) might acquire the company.

As most of you probably know by now, Sprint itself reached a deal with Softbank, where Softbank would acquire a majority stake in Sprint.    This morning’s news was that Sprint gained voting control of CLWR by buying out one investor’s stake.    To repeat:  Sprint will not be buying any stock on the open market – they negotiated the private purchase of one investor’s stake, to give them voting control of Clearwire.   Why did they do this? SO THAT THEY DON”T HAVE TO BUY THE REST OF THE COMPANY IN THE OPEN MARKET. (note: I guess I should put “in my opinion” after I yell like that in ALL-CAPS.  and I should add the words “RIGHT NOW” at the end of my yelling)

Now, we can argue about the prices which Sprint paid for the shares in this private transaction which clearly contained a control premium, but I think that’s a waste of time.  (For the record: “a cash sales price for the bundle of each whole share of Class A Common Stock and the related fractional Class B Interest of $2.97164 (consisting of an assigned value, only for the purposes of the ERH ROFO Notice, of $2.00 per Class A Share and $13.9835 per Class B Interest)”

The deal contains a make-whole provision whereas if a buyer comes in and pays more on average for CLWR shares in the next 3 years, the seller in this deal (ERH) will be compensated.  This clause does not mean that the A shares are “worth” $2.97 – it doesn’t even say that – it says that the A shares are “worth” $2.00 for the purposes of their analysis, but that’s also largely meaningless -this deal is about control premiums, and this clause is about protecting the seller if another deal is reached.

Let’s summarize:  CLWR shares rallied nearly 80% on hopes that Sprint or someone else would come in and buy the company.  Today’s news basically says, to me, that Sprint doesn’t need to buy the company now, and that they can now block anyone else from buying it.

And you’re surprised that CLWR stock isn’t rallying?

related:

Sprint: Turning Japanese

S-CLWR SEC filing

-KD

disclosures:  no positions in $CLWR.  long $S

postscript EDIT:   Yes, it’s of course possible that Sprint will buy Clearwire at a later date.   My point here is that now that Sprint has control, they are in no hurry, and given CLWR’s massive recent rally in anticipation of an imminent deal with Sprint, it should be of no surprise that CLWR is trading down on this news.  It’s not “manipulation,” it’s not “HFTs” or “shorties” – it’s just normal, sensible, reasonable price action.

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