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Clearwire (NSDQ: CLWR) and Sprint (NYSE: S) Nextel confirmed this morning that they have entered into a definitive agreement to combine their WiMax wireless broadband business to form a new company that will have sufficient resources to be a competitive force going forward. The deal, detailed in the release, has a little bit of everything with outside investments coming from a wide-range of companies and pacts to use each other’s products for services and devices that promise consumers the future — connecting to the Internet at high speeds while on the go.
As rumored, a string of cable, Internet and chip giants — Intel (NSDQ: INTC), Google (NSDQ: GOOG), Comcast (NSDQ: CMCSA), Time Warner Cable (NYSE: TWC) and Bright House Networks and Trilogy Equity Partners, run by John Stanton — have collectively agreed to invest $3.2 billion in the company, with a price target of $20 a share (for a total transaction value of $14.5 billion). The team will be led by Clearwire and managers from Sprint’s XOHM business unit.
The far-reaching commercial arrangements for each company involved include:
More on arrangements after the jump…
— Intel: Will embed WiMax chips into laptops and other mobile devices; has the option to enter into 3G and 4G wholesale agreements with Clearwire and Sprint, but has no plans to do so. Its investment comes to $1 billion.
— Google: Will develop Internet and advertising services and applications for WiMax devices; will be the default search provider and the preferred application provider for Clearwire’s new retail product; will supply its Android operating system for future Clearwire voice and data devices. Will be the default provider of web and local search for Sprint’s mobile phone services, and be able to preload several Google services, including Google Maps for mobile, Gmail and YouTube, onto select Sprint mobile phones; has the option to enter into 3G and 4G wholesale agreements with Clearwire and Sprint, but has no current plans to do so. Google’s stake is for $500 million.
— Sprint: Will enter a wholesale agreement with Clearwire to provide WiMax.
— Cable: Comcast ($1.05 billion), Time Warner (NYSE: TWX) Cable ($550 million), and Bright House Networks ($100 million) will enter into wholesale agreements with Clearwire, to become mobile WiMax providers, and will enter into 3G wholesale agreements with Sprint to offer Sprint’s wireless voice and data services in a bundle.
The financial details: Upon completion, Sprint will own the largest stake in the new company with 51 percent; existing Clearwire shareholders will own about 27 percent and the new strategic investors, as a group, will be acquiring about 22 percent for their $3.2 billion. The new Clearwire, to be based in Kirkland, Wash. with a big office in Virginia, will likely trade under the ticker “CLWR.” The management team will be led by Clearwire’s CEO Ben Wolff, and Barry West, Sprint’s current CTO and XOHM business unit leader.
Hurdles to closure: Given that Sprint Nextel and Clearwire failed to ink an even less comprehensive and complicated deal prior to this, it will be interesting to see if this one closes. However, the companies already had approval from all of their boards before this announcement. Of course, the deal will still have to be rubber-stamped by various entities, including Clearwire’s shareholders, the FCC and the Department of Justice (Hart-Scott-Rodino Act). The companies expect the deal to be completed during the fourth quarter.
Wolff: “Given the complexity of this transaction, we have taken the time and effort to do it right, by thoughtfully leveraging the resources and opportunities that we and our investors are bringing to the table. This transaction is tremendous news for the entire Clearwire team – our shareholders, our customers and our employee-partners, and we look forward to partnering with the talented team from XOHM to achieve our shared vision.”
Sprint Nextel’s CEO Dan Hesse confirmed the hand-off will provide the company time to focus on turning around its core products and services: “We’ve made an excellent start developing XOHM WiMAX services. Contributing those advances to a strongly backed new company – in which we’ll hold the largest interest – provides Sprint with additional financial flexibility and allows Sprint management to leverage and focus on our core business.”