DealBook: Trying to Avoid Rejection, Sprint Nextel Raises Its Offer to Buy All of Clearwire

Joe Raedle/Getty ImagesCellphones at a Sprint Nextel store. Sprint increased its offer for the nearly 50 percent stake in Clearwire that it does not own.

6:03 p.m. | Updated

Sprint Nextel sweetened its bid for full control of the wireless network operator Clearwire on Tuesday, moving at the last minute to avert rejection by shareholders.

Sprint Nextel sweetened its bid for full control of the wireless network operator Clearwire on Tuesday in an effort to avert rejection by shareholders.

Sprint is now offering $3.40 a share for the nearly 50 percent stake in Clearwire that it does not already own. That is 14 percent higher than the cellphone service provider’s December bid, and now values the stake at $2.5 billion.

The move highlighted the resistance Sprint is facing in its bid for Clearwire, an important part of its turnaround strategy. A number of major shareholders had angrily denounced the previous bid of $2.97 a share as too low, though other major Clearwire investors had already sold to Sprint at lower prices.

The sweetened offer, which was completed on Monday night, suggests that Sprint knew its previous proposal was bound to fail. Though the company already has the support of Clearwire investors that own about 26 percent of the network operator’s stock, it must still win over an additional 24 percent.

“The revised offer demonstrates Sprint’s commitment to closing the Clearwire transaction and improving its competitive position in the U.S. wireless industry,” Sprint said in a statement.

Clearwire postponed a vote on the deal, which had been scheduled for Tuesday, to May 30, while its board evaluates the latest proposal.

Shares of Clearwire jumped to $3.40 a share Tuesday, suggesting that while investors may still be hoping for a higher bid, they would be more amenable to accepting the new proposal.

Still, one of the biggest critics of the Sprint offer, the hedge fund Crest Financial, urged shareholders to reject even the sweetened bid as too low.

“Clearwire is acting in its usual stockholder-unfriendly way by adjourning the special meeting to grant Sprint the ability to pose a new, still inadequate offer,” David K. Schumacher, Crest’s general counsel, said in a statement. “Stockholders should demand that the Clearwire board finally act in the best interest of all shareholders, not just in the interest of Sprint.”

The battle over Clearwire is playing out in the shadow of a fight over Sprint itself. On one side is SoftBank of Japan, which has bid $20.1 billion for the company. On the other is Dish Network, which offered $25.5 billion last month.

Late on Monday, Sprint said that it was still holding due diligence talks with Dish to see if its newer suitor’s proposal was likely to prove superior. SoftBank has consented to the limited negotiations between Sprint and its rival bidder.

A decision by Sprint’s board could come within the next two or three weeks, according to a person briefed on the matter.

Sprint’s securing full control of Clearwire would be especially important to SoftBank, as that would allow the American cellphone service company to expand its Long-Term Evolution network, using the high-speed data standard employed by the latest generation of mobile devices.

Sprint is betting that upgrading its network will help it better compete against bigger rivals like Verizon Wireless and AT&T, after years of struggling to compete.

Its bid was made possible by a cash infusion from SoftBank of Japan, which bid $20.1 billion late last year to gain control of Sprint. Clearwire’s spectrum is similar to what SoftBank uses in Japan, potentially giving Sprint more bargaining power to order the newest phones.

SoftBank’s chief executive, Masayoshi Son, has suggested that Sprint could carry out its turnaround plans even without buying full control of Clearwire. Even if Sprint’s takeover entreaties fail, the company will still end up owning about 65 percent of the network operator.

But Clearwire still faces enormous financial pressure, and has already slowed important network improvements to preserve cash. The company has retained the Blackstone Group as an adviser on potential reorganization options, including a bankruptcy filing.

DealBook: Sprint Nextel Reaches a Deal to Buy Rest of Clearwire

Joe Raedle/Getty ImagesSprint is to expand its Long-Term Evolution network.

7:07 p.m. | Updated

Sprint Nextel agreed Monday to buy all of the wireless network operator Clearwire, an important step for the cellphone service provider as it continues its big turnaround campaign.

Under the terms of the bid, Sprint will pay $2.97 a share for the nearly 50 percent stake in Clearwire that it did not already own for a total of about $2.2 billion.

The two companies must still convince restive Clearwire shareholders that they should accept a bid only modestly raised from last week and that some have called too low.

The price is a bump up from the $2.90 a share that it offered last Thursday, and represents a premium of 128 percent over Clearwire’s stock price in early October, before speculation emerged that Sprint would seek to buy the wireless network operator. Sprint’s first proposal to Clearwire, made around Nov. 21, was worth about $2.60 a share.

Clearwire’s board approved the offer based on the recommendation of a special committee of directors not appointed by Sprint. Clearwire also has commitments for the deal from Comcast, Intel and Bright House Networks, which collectively own 13 percent of the voting shares.

Shares of Clearwire closed on Monday at $2.91, having fallen more than 13 percent as investors gave up on the prospects of a significantly higher offer.

Sprint is able to make the offer as a result of a cash injection from SoftBank of Japan, which agreed in October to a $20.1 billion transaction to gain majority control of the American telecommunications company. Sprint still lags far behind the market leaders, Verizon Wireless and AT&T.

The Clearwire deal would allow Sprint to expand its Long-Term Evolution network, which is based upon the same data standard used by the newest generation of smartphones. Clearwire owns spectrum that is similar to what SoftBank uses in Japan, potentially giving the newly strengthened Sprint more clout in ordering the latest devices.

Warren Mell/ClearwireClearwire demonstrated its 4G modem, which uses cell signals for wireless broadband, in Las Vegas in 2009.

Sprint initially invested in Clearwire in 2008 as part of an unusual consortium that also included Google, Intel and Time Warner Cable, with the aim of creating a next-generation data network. The telecom had long been the biggest investor, with significant leverage over Clearwire, but did not have full control.

“It feels good,” Daniel R. Hesse, Sprint’s chief executive, said in a telephone interview. “It’s been a four-year journey for me, and a long journey for Clearwire’s management and its board.”

Some of Clearwire’s minority shareholders have said that the company should hold out for a higher price, with one analyst calling for at least $5 a share.

One of these investors, Crest Financial, said that it would try to block Sprint’s deal with SoftBank if the earlier offer of $2.90 a share had gone through.

Erik E. Prusch, Clearwire’s chief executive, said his company had explored a wide range of alternatives to a sale. But those options — including a sale of excess spectrum, a deal with another strategic partner or raising additional capital — would have fetched far less money.

And he noted that Clearwire had retained the Blackstone Group as an adviser on reorganization options, which people briefed on the matter have said included a potential bankruptcy filing. The company said that as of Sept. 30, it had enough cash to last for about a year, though it had slowed important network improvements.

As part of the deal announced Monday, Sprint will provide the company with up to $800 million in interim financing.

“At this point, we believe that a restructuring is quite possible, should our transaction with Sprint not close,” Mr. Prusch said on a conference call with analysts.

In an interview, he noted that Google had sold its holdings in Clearwire this year at $2.26 a share. Time Warner Cable sold its shares for $1.37 apiece.

Citigroup and the law firms of Skadden, Arps, Slate, Meagher & Flom and King & Spalding advised Sprint. The Raine Group acted as financial adviser to SoftBank and Morrison Foerster acted as counsel to SoftBank.

Evercore Partners and the law firm Kirkland & Ellis advised Clearwire. Centerview Partners acted as financial adviser and Simpson Thacher & Bartlett and Richards, Layton & Finger acted as counsel to Clearwire’s special committee. Blackstone Advisory Partners advised Clearwire on restructuring matters. Credit Suisse acted as financial adviser and Gibson Dunn & Crutcher acted as counsel to Intel.

Sprint Reports Loss on Nextel Write-Down

But Sprint was successful in persuading smartphone subscribers to pay more for the “unlimited data” service, and its service revenue climbed, beating Wall Street’s estimates.

The results cheered investors, who sent Sprint’s volatile stock up 20 percent, or 68 cents, to $4.05, its highest level in nearly a year.

In the April to June period, Sprint’s net loss was $1.37 billion, or 46 cents a share, compared with a loss of $847 million, or 28 cents a share in the same quarter last year.

Analysts polled by FactSet on average had been expecting a loss of 41 cents a share.

It was the 19th consecutive quarter of losses for Sprint, which is struggling to compete with its two bigger rivals, AT&T and Verizon Wireless. Still, Sprint raised its forecast for adjusted operating earnings for the year by 18 percent. The measure excludes interest expenses and writing down asset values.

Sprint’s revenue totaled $8.84 billion, up 6 percent from a year earlier. Analysts were expecting $8.72 billion.

Sprint’s goal is to complete the shutdown of Nextel in the middle of next year. It bought the network in 2005, a deal that proved disastrous. Nextel’s strength is its push-to-talk capability, functioning like a walkie-talkie, but it is not built for smartphones or data service. As subscribers abandoned it, Sprint was saddled with the cost of maintaining the network.

The company’s chief executive, Dan Hesse, said Thursday that Sprint was ahead of schedule in deactivating Nextel antennas. The company is using the space freed up on the airwaves to make data service faster.

Customers on contract-based Sprint plans paid an average of $63.38 a month in the quarter, a record high and nearly as much as AT&T customers are paying, even though AT&T has had the iPhone, which attracts high-paying customers, for a longer time.

IPhones proved surprisingly popular at Sprint. It activated 1.5 million of the phones in the quarter, the same number as in the first quarter. AT&T and Verizon had a drop in iPhone activations from the first quarter to the second, as the excitement around the latest model, the iPhone 4S, cooled.

Sprint, unlike Verizon or AT&T, still offers unlimited data service, and Mr. Hesse said that was a major reason Sprint keeps attracting iPhone subscribers. However, Sprint offers relatively slow data speeds.

Sprint Reports Loss on Nextel Write-Down

But Sprint was successful in persuading smartphone subscribers to pay more for the “unlimited data” service, and its service revenue climbed, beating Wall Street’s estimates.

The results cheered investors, who sent Sprint’s volatile stock up 20 percent, or 68 cents, to $4.05, its highest level in nearly a year.

In the April to June period, Sprint’s net loss was $1.37 billion, or 46 cents a share, compared with a loss of $847 million, or 28 cents a share in the same quarter last year.

Analysts polled by FactSet on average had been expecting a loss of 41 cents a share.

It was the 19th consecutive quarter of losses for Sprint, which is struggling to compete with its two bigger rivals, AT&T and Verizon Wireless. Still, Sprint raised its forecast for adjusted operating earnings for the year by 18 percent. The measure excludes interest expenses and writing down asset values.

Sprint’s revenue totaled $8.84 billion, up 6 percent from a year earlier. Analysts were expecting $8.72 billion.

Sprint’s goal is to complete the shutdown of Nextel in the middle of next year. It bought the network in 2005, a deal that proved disastrous. Nextel’s strength is its push-to-talk capability, functioning like a walkie-talkie, but it is not built for smartphones or data service. As subscribers abandoned it, Sprint was saddled with the cost of maintaining the network.

The company’s chief executive, Dan Hesse, said Thursday that Sprint was ahead of schedule in deactivating Nextel antennas. The company is using the space freed up on the airwaves to make data service faster.

Customers on contract-based Sprint plans paid an average of $63.38 a month in the quarter, a record high and nearly as much as AT&T customers are paying, even though AT&T has had the iPhone, which attracts high-paying customers, for a longer time.

IPhones proved surprisingly popular at Sprint. It activated 1.5 million of the phones in the quarter, the same number as in the first quarter. AT&T and Verizon had a drop in iPhone activations from the first quarter to the second, as the excitement around the latest model, the iPhone 4S, cooled.

Sprint, unlike Verizon or AT&T, still offers unlimited data service, and Mr. Hesse said that was a major reason Sprint keeps attracting iPhone subscribers. However, Sprint offers relatively slow data speeds.