Rating agency Standard & Poor’s (S&P) has announced that Clearwire Corporation , which offers Wi-Max services in the U.S. will not be immediately affected by Japan-based Softbank’s 70% acquisition of Sprint-Nextel Corp (S - Analyst Report) for about $20.1 billion. The rating firm is maintaining Clearwire’s CCC rating along with a Developing outlook despite Sprint-Nextel being its largest shareholder with a 48.1 % stake.
Clearwire has formed a venture combining its infrastructure together with the wireless network of Sprint to install TDD-LTE 4G network by the beginning of 2013 and will cover 5,000 LTE footprints by first half of 2013. S&P believes that if Softbank acquires Clearwire it will lead to a reduction of the latter’s handset related costs as Clearwire is using Time Division (TD) LTE duplex technology in the 2.5 GHz spectrum band — the same technology that Softbank uses in Japan.
Softbank has no immediate plans to take over Clearwire until the Sprint transaction ends. However, if it indeed makes a move the deal will be beneficial for Clearwire as it will get the financial resources to modernize its network which it was unable to get from Sprint because of its huge debt burden.
On the flip side, Sprint will get access to Clearwire’s additional spectrum which will put the third largest U.S. carrier in a much stronger position as compared to Verizon Communications Inc. (VZ - Analyst Report) and AT&T Inc. (T - Analyst Report)
The Bellevue, Washington based Clearwire will also receive a series of prepayments amounting $350 million from Sprint over a two-year period if the company meets certain LTE deployment target by June 2013. We believe such series of prepayments from Sprint coupled with a huge cash base of $1.2 billion and availability of huge wireless spectrum license will continue to lend support to the company to meet its future goal.
Currently, Clearwire Corporation has a Zacks #3 Rank, implying a short-term Hold rating on the stock.