Clearwire addresses capital gap with $300m stock offering
Operator to raise the funds for its network migration, but will need a further $100m to trigger Sprint finance and secure its LTE plan
Published: 6 December, 2011
READ MORE: Financial | US | Clearwire | LTE
When Sprint renewed its shotgun wedding vows with Clearwire last week, it committed sufficient funds to keep the joint venture afloat, but not to underwrite its ambitious LTE migration plan. Now, trading on the increased confidence which Sprint has brought to its plan, Clearwire aims to raise that capital with a $300m stock offering.
The WiMAX venture wants to put itself back in the 4G mainstream by moving to TD-LTE and eventually LTE-Advanced, at least in its most populous territories. The resulting network would then support wholesale services, and following the Sprint deal last week, will likely form a long term element of the CDMA carrier's complex 4G strategy, along with its own build-out and its hosting/spectrum alliance with LightSquared.
However, Clearwire will soon lose its other important MVNO customers, the cablecos Comcast, Time Warner and BrightHouse, which are to move to a Verizon deal next year, suggesting that they may also sell their stakeholdings in Clearwire.
So the backdrop remains uncertain for the JV as it announces its plan to issues new common stock to the value of $300m, with an option to underwriters to purchase another $45m within 30 days. That would give it half the capital it needs for the first phase of its TD-LTE roadmap, while arrangements with Sprint and ongoing revenues are earmarked to provide the rest.
The new public offering will dilute the shareholdings of Sprint and the other investors, which - as well as the cablecos - include Intel, Google and public investors. Sprint already committed last week to inject up to $347m additional equity, which would maintain its stake around the current 49.6% level, but this investment will not be triggered unless Clearwire raises at least $400m. So even if the public offering succeeds, the venture will need to find another $100m in backing to secure its roadmap.
The business plan remains fraught with risk, given the ascendancy of Verizon in mobile broadband and the unpredictable strategies of Sprint. But if Clearwire does get to its $400m target, it will have answered back many of the critics who believed it was dead in the water, at least for now. As analyst Kevin Fitchard writes on the GigaOM blog: "If Clearwire can raise $400m, it will have accomplished one heck of a turnaround. Last month, Clearwire was flirting with bankruptcy - its nationwide WiMAX roll-out halted and its retail business in jeopardy, all the while engaged in a very public tiff with its primary investor and customer Sprint. Clearwire also was burning through cash and didn't have a penny to put toward its TD-LTE network. Now Clearwire has guarantees on WiMAX and future TD-LTE service revenues. If it can execute its equity sale, it will have the money and then some to move into the LTE age."
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