GigaOM » Public offering

Sprint cedes its majority stake in WiMAX carrier Clearwire

Kevin Fitchard — Mon, 11 Jun 2012 17:51:19 +0000

Sprint gave up its voting majority on the Clearwire board last year, but now it has given up its majority ownership in the 4G provider as well, according to Reuters. Sprint’s stake in the company once so crucial to its mobile broadband strategy has now fallen below 50 percent, which will help the carrier keep its distance from the Clearwire if it goes bust.

When Clearwire returned to the market for more funding in December, all existing shares were diluted. Sprint gave up the option to match any additional investment in order to maintain its same ownership position, and it appears to have done so up to a point. Clearwire raised $402.5 million form new investors, and Sprint kicked in $331.4 million, giving Clearwire the cash it needs to start its LTE network build.

By not matching the public offering completely, Sprint let its ownership fall well below 50 percent, which in turn allowed Sprint to reclaim the voting shares it surrendered to Clearwire last year. “Now that our economic interest has fallen below 50 percent, we are reclaiming our full voting rights so that our voting rights and economic rights are once again aligned,” Sprint spokesman Scott Sloat told Reuters.

By not having direct control over the company Sprint protects itself from Clearwire’s creditors if the company were to default on its debt, which is why Sprint surrendered its voting rights in the first place. While Sprint relies on Clearwire to power its current WiMAX service and supply additional LTE capacity in the future, Sprint is launching its own commercial LTE service this summer, while gradually phasing out its dependence on WiMAX.

Photo courtesy of Shutterstock user Susan Law Cain

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Facebook gets a reality check on IPO day

Ki Mae Heussner — Fri, 18 May 2012 20:55:13 +0000

Once protected by the hype bubble, Facebook is getting a hard lesson in the realities of the public markets. Despite the massive build-up to its IPO today, the market response has been more tepid than expected.

After a delayed start, Facebook started trading at $42, about 10.5 percent above its offer price of $38. But over the course of the day, it gradually traded down to close at $38.23, barely squeaking in above its starting price. In after hours trading, the price remained around $38.27. According to analysts and industry reports, whenever the stock threatened to fall below the opening price, Facebook’s underwriters stepped in to prop it up.

“We are seeing the stock hit reality like a brick wall,” said GreenCrest Capital senior managing analyst Anupam Palit. Facebook’s scale and engagement might have pushed its valuation to $100 billion, but, like every other public company it’s not immune to the larger economic trends.

Palit said he expected Facebook’s first day to be less dramatic than that of its public tech peers (like LinkedIn, Pandora and Groupon, which all saw a first-day pop of at least 30 percent), but added that today was “definitely more muted” than anticipated.

Still, he said that Facebook’s performance was generally positive considering that “the guys who have flown really high on their IPO have tumbled in subsequent weeks.”

Also, while first-day retail interest in other tech stocks had been essentially nonexistent, Palit said, retail buyers were much more interested in Facebook.

“It is a much more ‘tangible’ company because the average person uses it and knows what it is,” he said. “There are retail investors who want to say they took part in this because it is a big moment in market history.”

That played out today, he said, as retail buyers were willing to push the stock above $40, while institutional investors, who are more sensitive to valuation, wanted to keep the price lower. In the following weeks, Palit expects the price to continue to fall, eventually settling around $32.

On Friday, more than 577 million shares in Facebook changed hands, setting a new record for IPO trading volume.

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Clearwire closing in on the magic LTE investment number

Kevin Fitchard — Tue, 13 Dec 2011 00:38:25 +0000

Clearwire’s financial announcement Monday morning seemed innocuous enough: The underwriters of its $350 million stock offering are exercising an option to purchase another $52.5 million in shares. That’s hardly big money in the world of telecom finance, but what the release doesn’t tell you is that with the option, the value of Clearwire’s public offering now breaks the $400 million mark. And $400 million is the magic equity number that triggers a big investment by Sprint and marks the beginning of Clearwire’s LTE rollout.

If the offering is successful, Sprint will kick in as much as $347 million to maintain its current 49.6 percent ownership stake in the WiMAX operator. Clearwire has said it would use those funds for any number of housekeeping items, including operations and maintenance, but the big-ticket item on its to-do list is its planned LTE network. Clearwire has said it needs $600 million in new capital to get its time division LTE (TD-LTE) launch off the ground, so the majority of that investment will almost certainly go toward a massive infrastructure build.

Clearwire plans to overlay TD-LTE in all of its WiMAX markets, which currently covers 132 million people in 72 markets, deploying the network in hot zone clusters. That hardly gives Clearwire a nationwide network, but if it meets certain coverage targets, Sprint has agreed to provide more funding, which Clearwire could use to launch the second phase of its rollout. Given the problems Sprint’s other LTE partner LightSquared is having with regulators, Sprint has even more incentive to ensure Clearwire gets its network built.

Image courtesy of Flickr user Tracy O.

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Clearwire hinges its LTE rollout on raising new public funds

Kevin Fitchard — Mon, 05 Dec 2011 23:59:15 +0000

Sprint’s $1.6 billion deal last week to save Clearwire committed the funds the WiMAX operator needed to stay in business, but what it didn’t provide was the capital that Clearwire needs to get its new LTE network built. On Monday, Clearwire revealed exactly how it planned to raise that desperately-needed network money: new shareholders.

Clearwire plans to issue new common stock worth $300 million, with an option to underwriters to purchase another $45 million within 30 days. That would give it half the capital it needs for the first phase of its new time-division-LTE (TD-LTE) network. As for the other half, Clearwire is counting on Sprint to chip in the funds as via prior arrangement.

A new public offering would dilute Sprint and every other investor’s current shares. If Sprint wants to maintain its 49.6 percent majority stake in Clearwire, it has to pony up more equity, which Sprint has agreed to do last week up to $347 million. The only issue is that Sprint’s investment commitment doesn’t kick in unless Clearwire raises at least $400 million. That means Clearwire not only has to pull off this public offering, it also needs to find another $100 million in investment before it will ever see any of Sprint’s matching funds.

If Clearwire can raise $400 million, though, it will have accomplished one heck of turnaround. Last month, Clearwire was flirting with bankruptcy — its nationwide WiMAX rollout 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.

Clearwire still faces plenty of hurdles: its initial LTE plans are quite conservative and depend almost entirely on Sprint as a customer, while its cable investors Comcast and Time Warner have indicated they plan to dump WiMAX and tap Verizon’s networks for their future wireless needs. But Clearwire would still be a lot better off than when it started this year.

Feature image courtesy of Flickr user zzzack

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