Sprint and Clearwire to combine WiMAX businesses for a new mobile broadband company
On May 7, 2008, Clearwire Corporation and Sprint Nextel Corporation announced that they have entered into a definitive agreement to combine their next-generation wireless broadband businesses to form a new wireless communications company.
Here are the highlights of the merger:
- Intel, Google, Comcast, Time Warner Cable and Bright House Networks to invest $3.2 billion in the combined company, at a target price of $20.00 per share
- Formation of new company brings together the nation’s leaders in communications, technology innovation and entertainment
- New company to speed deployment of first nationwide next-generation mobile WiMAX network
- Transaction designed to unlock the potential of Clearwire’s and Sprint’s 4G assets
- New company to be Led by management team from Clearwire and Sprint’s XOHM Business Unit; Board of Directors to include leading wireless and cable executives
The new company, which will be named Clearwire, will be focused on expediting the deployment of the first nationwide mobile WiMAX network to provide a true mobile broadband experience for consumers, small businesses, medium and large enterprises, public safety organizations and educational institutions. The new Clearwire expects to dramatically enhance the speed and manner in which customers access all that the Internet has to offer at home, in the office and on the road.
Sprint and Clearwire also announced that five innovative technology, content and communications leaders – Intel Corporation, through Intel Capital, Google Inc., Comcast Corporation, Time Warner Cable Inc., and Bright House Networks – have collectively agreed to invest $3.2 billion into the new company. The investment by the five strategic investors will be based on a target price of $20.00 per share of Clearwire’s common stock, subject to a post-closing adjustment. This adjustment is based upon the trading prices of new Clearwire common stock on the NASDAQ Market over 15 randomly selected trading days during the 30-trading day period ending on the 90th day after the closing date. The price per share will be based upon the volume weighted average price on such days and is subject to a cap of $23.00 per share and a floor of $17.00 per share. In addition, Trilogy Equity Partners, led by wireless veteran John Stanton, will invest directly in the new Clearwire’s common stock.
Upon completion of the proposed transaction, Sprint will own the largest stake in the new company with approximately 51 percent equity ownership on a fully diluted basis assuming an investment price of $20.00 per share. The existing Clearwire shareholders will own approximately 27 percent and the new strategic investors, as a group, will be acquiring approximately 22 percent for their investment of $3.2 billion, both on a fully diluted basis assuming an investment price of $20.00 per share.
Sprint and Clearwire also announced a series of commercial agreements with the strategic investors, including 3G and 4G wholesale agreements.
Benjamin G. Wolff, chief executive officer of Clearwire, said, “The combination of robust next-generation mobile WiMAX technology and nationwide spectrum that we believe is optimal for delivering mobile broadband services – coupled with substantial new financial resources, a team of experienced wireless industry veterans, and distribution and technology agreements with some of our nation’s leading communications, technology and content companies – creates what I believe to be a once-in-a-lifetime opportunity.”
"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,” Wolff added.
The strategic investors are among the nation’s leaders in communications technology, chipset development and Internet advertising, content and distribution. It is expected that the new Clearwire will have a time-to-market advantage over competitors in fourth-generation services, supported by strong spectrum holdings and a national footprint. Further, it will build on the strong foundation of Clearwire’s rapidly growing subscriber base of nearly 400,000 wireless broadband customers as of year-end 2007, as well as Sprint’s continued XOHM WiMAX network build-out in certain markets throughout this year.
“This is a great coalition of innovative companies that have joined together to create the next generation of mobile wireless products. It is exciting to be on the ground floor of this new venture that we believe will create unprecedented high-speed wireless products and make them available across the nation,” said Brian L. Roberts, chairman and chief executive officer of Comcast Corporation. “This transaction is attractive to us strategically and financially and puts in place very attractive wholesale relationships for access to Sprint’s existing 3G and Clearwire’s 4G networks, giving us complete flexibility to introduce wireless mobility in terms of product innovation and deployment.”
The new Clearwire expects to offer mobile wireless Internet services on a broad array of new devices that will be made possible by integrated WiMAX chipsets, scalable operating expenses and a commitment to an open architecture.
Mobile WiMAX is a standards-based wireless broadband technology designed to operate multiple times faster than today’s 3G wireless networks. With embedded WiMAX chipsets in laptops, phones, PDAs, mobile Internet devices and consumer electronic equipment, mobile WiMAX technology is expected to allow users to wirelessly access a range of multimedia applications, such as live videoconferencing, recorded video, games, large data files and more – anywhere in the network coverage area.
The transaction has been approved by all of the parties’ boards of directors, and is expected to be completed during the fourth quarter of 2008.
The investment by Intel Capital, Google, Comcast, Time Warner Cable and Bright House Networks will be used to advance the development of the new Clearwire’s mobile WiMAX network. This nationwide footprint is underpinned by the substantial next-generation wireless broadband spectrum portfolio that Sprint and Clearwire collectively hold in the United States. The combined wireless spectrum should allow the new Clearwire to achieve greater coverage, cost and operational efficiencies, and bandwidth-utilization than either company could by operating alone. The new Clearwire is targeting a network deployment that will cover between 120 million and 140 million people in the U.S. by the end of 2010.
In addition to spectrum, Sprint will contribute to the new Clearwire certain hardware, software and all of its WiMAX-based trademarks and other WiMAX-related intellectual property. The new Clearwire expects to materially reduce capital and operating expenditures by leveraging Sprint’s existing infrastructure, reducing the cost of building out the mobile WiMAX network nationwide. The new Clearwire expects to utilize Sprint’s towers, fiber network and IT support at favorable bulk rates. Sprint also will realize cost savings for its core business by sharing certain costs of towers and other infrastructure.
The agreements with the strategic investor group define significant new commercial relationships, including:
- Intel will work with manufacturers to embed WiMAX chips into Intel® Centrino® 2 processor technology-based laptops and other Intel-based mobile Internet devices, and will market the new company’s service in association with Intel’s performance notebook PC brand.
- Google will partner with the new Clearwire in the development of Internet services, advertising services and applications for mobile WiMAX devices. In addition, Google will be the search provider and a preferred provider of other applications for the new Clearwire’s retail product.
- Google will partner with the new Clearwire on an open Internet business protocol for mobile broadband devices. The new Clearwire will support Google’s Android operating system software in its future voice and data devices that it provides to its retail customers.
- Sprint, Comcast, Time Warner Cable, and Bright House Networks will enter into wholesale agreements with the new Clearwire, becoming 4G providers of new Clearwire’s mobile WiMAX service.
- Comcast, Time Warner Cable, and Bright House Networks and, after completion of the transactions, the new Clearwire, will enter into 3G wholesale agreements with Sprint, becoming bundled providers of Sprint’s wireless voice and data services, expanding the reach of Sprint’s network to more customers, while providing the cable companies a simpler, more effective vehicle to bundle wireless services.
- Sprint and Google have also entered into an agreement related to Sprint's mobile services, whereby Google will become the default provider of web and local search services, both of which will be enabled with location information, for Sprint. Sprint will also preload several Google services - including Google Maps for mobile, Gmail and YouTube - on select mobile phones and provide easier access to other Google services.
- Google and Intel have options to enter into 3G and 4G wholesale agreements with Clearwire and Sprint respectively and have no current plans to do so.
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