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Sprint Nextel Corp. (S - Analyst Report) has finally inked an agreement to acquire the remaining 50% stake in Clearwire Corporation for $2.97 per share. The total purchase price is estimated at $2.2 billion.
The agreement was approved by Clearwire’s board of directors and is subject to regulatory approvals. The deal also requires approval of the majority of Clearwire stakeholders other than Sprint, which already owns 50% of the company’s shares. The acquisition is expected to close by mid-2013, subject to regulatory approvals.
If the deal materializes, Sprint will gain full rights over Clearwire. This implies access to Clearwire’s radio frequency spectrum ranging 2.5 GHz, utilized in providing services using 4G 802.16e mobile WiMAX standard.
Apart from this deal, Sprint is also trying to forge a partnership with DISH Network Corp. (DISH - Analyst Report) that will enable the latter to offer its own mobile services using Sprint’s network. DISH, the second largest satellite TV operator, is waiting for the FCC nod to launch a nationwide high-speed wireless broadband network.
This will enable the company to offer mobile Internet, voice and video services to its customers using its newly acquired satellite airwaves from the bankrupt DBSD North America Inc. and TerreStar Networks Inc.
The agreement, if cleared, would allow Sprint to access DISH Network’s spectrum, which is the most important and scarce element in deploying a nationwide super-fast LTE network. Nevertheless, this deal may need an approval from the Japanese wireless service provider Softbank, which has decided to purchase a majority stake in Sprint.
In October, it was reported that Sprint was selling its 70% stake to Japanese cell phone company Softbank Corp. for $20.1 billion.
Sprint is in the midst of a multi-billion dollar restructuring program known as Network Vision. Through this plan, the company is concentrating on the core Sprint platform, which includes CDMA, WiMAX and Long-Term Evolution (LTE) technologies, and the eventual termination of the Nextel platform (iDEN business).
Though the company has enough liquidity to address the growing costs of network upgrade, iPhone subsidies, debt maturities and working capital requirements, it needs to bolster its liquidity position buyouts. The potential transaction would provide Sprint the financial support to build and improve its competitive wireless network.
However, the company is also struggling to deal with the loss of post-paid customers to other industry players such as Verizon Communications Inc. (VZ - Analyst Report) and AT&T (T - Analyst Report). This shrink in subscriber base was primarily due to intense price competition, ineffective marketing, less favorable network quality and delay in integration of back-office functions with its acquired units.
We reaffirm our long-term Neutral recommendation on Sprint. However, the stock has a Zacks #2 Rank, implying a short-term (1-3 months) Buy rating.