Sprint Nextel Corp, the majority owner of Clearwire Corp, has offered $2.1 billion to buy the rest of the wireless service provider but it will likely have to offer more money in order to secure a deal.
Clearwire, which said it is reviewing the offer, saw its share jump more than 11% to $3.06 after the offer, topping Sprint's $2.90 offer price and suggesting that shareholders were hoping for a higher bid.
Sprint said it would also provide interim financing of $800 million to cash-strapped Clearwire if shareholders agree to the $2.90 offer.
But analysts said that Clearwire shareholders would be very unlikely to accept Sprint's offer, which would allow the No. 3 U.S. mobile service provider to take full control of Clearwire's spectrum holdings to bolster its own wireless data services.
While Clearwire has been looking for new financing, analysts said that its need is not so urgent that it should accept Sprint's offer which they described as a "starting point."
"With a year of liquidity on the books and the alternative of raising additional equity or refinancing debt at this level, Clearwire is hardly without options, and we don't see why the company would necessarily jump at a the $2.90 bid," JPMorgan analyst Philip Cusick said in a research note.
Wells Fargo analyst Jennifer Fritzsche said Sprint's offer price compared poorly to other deals in the U.S. wireless industry that involved sales of wireless spectrum holdings. She calculated that comparable deals had valued wireless spectrum at 50% more than Sprint was offering to pay Clearwire.
Sprint declined to comment on whether it would revise its offer. Its proposed price is 5% higher than Clearwire's closing stock price on Wednesday, but more than double its $1.30 price on Oct 10.
Clearwire shares have risen sharply since then on increasing investor speculation that loss-making Sprint would use new financing from Japan's Softbank Corp to buy Clearwire. Sprint agreed in October to sell a 70% stake to Softbank for $20 billion.
CLEARWIRE REVIEWING OFFER
Clearwire, which also counts Sprint as its biggest customer, has long been seen by analysts as an acquisition target for Sprint, which needs to improve its network to compete with bigger rivals Verizon Wireless and AT&T.
Clearwire said in a regulatory filing on Thursday that it is currently in talks with Sprint regarding a "potential strategic transaction" and that a special committee of its board of directors has been reviewing the potential deal.
It did not offer an immediate response to the $2.90 offer.
Clearwire, which has been looking to raise more financing to upgrade its network and to keep the business afloat, has said that it has enough money to last it until the third quarter.
The offer from Sprint, which already owns 50.4% of Clearwire's total outstanding shares, values Clearwire at around $4.2 billion.
Some minority Clearwire shareholders -- including Mount Kellet Capital Management LP and Crest Financial Limited -- have expressed concerns over a deal with Sprint, suggesting that Clearwire should look at other options.
Between them, the two investment firms own nearly 15% of Clearwire's publicly traded shares.
On Tuesday, Crest Financial filed a lawsuit against the company and Sprint to try to thwart a deal.
Clearwire's other minority shareholders include Intel Corp and Comcast Corp who own around 12.4% between them. Sprint has been in discussions with those companies about purchasing their shares, according to people familiar with the matter.
Crest, Mount Kellet did not comment on the offer. Representatives of Intel and Comcast were not immediately available for comment.
The offer also needs the approval of Softbank and is contingent on Sprint's planned sale of 70% of the company to Softbank, Sprint said in the regulatory filing. (link.reuters.com/san64t)
Clearwire shares rose 38 cents or more than 13% to $3.11 on Nasdaq after the news. Sprint Nextel shares were little changed at $5.62.