Sprint’s(s S) $1.6 billion deal last week to save Clearwire(s clwr) 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(s CMSCA) and Time Warner(s TWC) have indicated they plan to dump WiMAX and tap Verizon’s (s VZ) 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