Several weeks ago, Crest Financial Limited, citing a newly released independent study conducted by Information Age Economics (IAE) that essentially claimed that Sprint's Clearwire bid was and continues to be greatly underpriced, launched a lawsuit to prevent the buyout of Clearwire by Sprint.
Crest owns approximately 8 percent of Clearwire's class A stock, and Crest claims that the Sprint offer significantly harms minority investors.
Today, another new study - this one conducted by former Federal Communications Commission (FCC) commissioner Dr. Harold Furchtgott-Roth and the Analysis Group, has reached the very same conclusion. As with the IAE report, the Analysis Group report - commissioned by Crest - also claims that the price Sprint has offered for Clearwire considerably understates the inherent value of Clearwire’s wireless spectrum holdings and the business opportunities that are available to it because of those holdings.
Crest's position is that Clearwire should remain an independent entity that should be allowed to take advantage of those business opportunities. Crest believes Clearwire will be able to unlock the value of its holdings by doing so, and both studies lend considerable support to Crest’s belief.
As with the IAE report, the new study has now also been submitted to the FCC. Crest, of course, hopes the FCC will take the reports into significant account as it continues to evaluate the deal.
According to the Furchtgott-Roth Report:
- Sprint’s $2.97 per share offer represents a value of just $0.11 per MHz pop for Clearwire’s spectrum - this greatly understates the current value of Clearwire’s unique spectrum holdings.
- Applying reasonable assumptions to the multi-customer business plan presented by two firms advising the Clearwire board leads to a more legitimate valuation ranging between $9.54 and $15.50 per share (which places spectrum prices between $0.31 and $0.50 per MHz pop, as opposed to $0.11 under the Sprint bid).
- The Sprint offer fails to adequately value Clearwire’s ability to deploy wireless technology that offers far greater future value than the technology currently offered by most major U.S. carriers.
We're hardly convinced that the latter bullet point above is true ourselves. However, Dr. Furchtgott-Roth notes that TDD-LTE technology allows for higher download speeds and efficient spectrum utilization. He also notes that “the only band of spectrum in the United States that can be developed for TDD-LTE services is the 2.5 GHz band largely controlled by Clearwire.”
What the report fails to consider, however, is whether or not Clearwire's management will be able execute on any such thing - management's history to date strongly suggests to us that the odds are greatly against it. Think of it as a management team armed with a hammer to screw in a lot of screws.
To us, that defines Clearwire's management team.
The report also suggests that Sprint’s offer ignores both the value ascribed to similar spectrum in recent transactions and the fact that Clearwire’s spectrum holdings, together with its technology offerings, are well-suited for use by multiple carriers. The report also claims that that for "unexplained reasons" Clearwire abandoned this potentially lucrative multi-customer strategy in favor of the Sprint acquisition.
Per the report the fragmented spectrum holdings of other U.S. carriers create an opportunity for Clearwire to offer a valuable wholesale service,” the report states. Again, we need to point to whether or not Clearwire can ever execute and take advantages of this fragmented market. We don't believe it can, and clearly Sprint also believes this to be the case, which to some degree leads to Sprint's own valuation numbers.
It remains to be seen how the FCC itself will respond to the report's allegations.
The full Furchtgott-Roth Analysis Group Report is available for free download.
Edited by
Braden Becker 
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