Intel, Google, Comcast, Time Warner, Bright House invest $3.2B in combined Sprint, Clearwire mobile broadband company

Sprint and Clearwire are combining their WiMax businesses in an effort that is bringing together leaders in communications, technology and entertainment in order to speed deployment of the US's first nationwide next-generation mobile WiMAX network.

By Ann Steffora Mutschler, Senior Editor -- Electronic News, 5/7/2008

Aiming to accelerate the deployment of the first nationwide mobile WiMAX network and provide a true mobile-broadband experience, Clearwire Corp [CLWR] and Sprint Nextel Corp [S] said today they have entered into a definitive agreement to combine their next-generation wireless broadband businesses into a new company named Clearwire.

To achieve this, five leading players in technology, content and communications – Intel Corp [INTC], (through Intel Capital), Google Inc [GOOG], Comcast Corp [CMSCA, CMCSK], Time Warner Cable Inc [TWC], and Bright House Networks – will collectively invest $3.2 billion into the new company.

The investment will be based on a target price of $20 per share of Clearwire's common stock, subject to a post-closing adjustment, which is based on 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 per share and a floor of $17 per share. 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 Clearwire with approximately 51% equity ownership on a fully diluted basis assuming an investment price of $20 per share, while existing Clearwire shareholders will own approximately 27%, and the strategic investors, as a group, will acquire approximately 22% for their investment of $3.2 billion, both on a fully diluted basis assuming an investment price of $20 per share.

In connection with the merger, Sprint and Clearwire announced a series of commercial agreements with the strategic investors, including 3G and 4G wholesale agreements.

Paul Otellini, Intel president and CEO commented in a statement, “This agreement is a historic step forward for WiMAX as it represents the first nationwide deployment of a next-generation mobile broadband Internet in the US. The agreement also signifies growing industry support for WiMAX. Given its flexibility, coverage and speed, WiMAX will enable the mobile Internet and is already opening doors to a host of new and exciting applications, devices and business models around the world.”

Indeed, Intel, which is already a big player in the WiMax space, recently said it will invest $500 million over the next five years in Taiwan’s WiMax efforts, working with the Taiwan Ministry of Economic Affairs to evaluate the creation of a business entity for WiMax system integration and invite relevant Taiwanese industries to invest in this business entity.

These investments bolster Intel’s strategy to make 2008 “the year of WiMax,” which the chipmaker first discussed its September 2007 developer forum.

For Sprint shareholders, the company believes it is an opportunity to unlock and bring visibility to the value of Sprint’s spectrum assets, technology and expertise, by leveraging the technology, applications and distribution strengths of the investors, who together command nearly a half trillion dollars in market capitalization, noted Dan Hesse, president and CEO of Sprint. “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.”

Given that the strategic investors are among the nation's leaders in communications technology, chipset development and Internet advertising, content and distribution, the new Clearwire expects to have a time-to-market advantage over competitors in 4G services, supported by spectrum holdings and a national footprint.

Further, the new Clearwire said it builds on the strong foundation of the existing Clearwire's 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.

The new Clearwire said it expect 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 multi-media applications such as live videoconferencing, recorded video, games, large data files and more – anywhere in the network coverage area.

The transaction is expected to be completed during Q4.

The new Clearwire’s board of directors will be comprised initially of 13 members, including seven directors to be named by Sprint of which at least one will be independent, four named by the strategic investors of which at least one will be independent, one named by Eagle River, the private investment company controlled by wireless pioneer Craig O. McCaw, and one independent member to be nominated by the new company's nominating committee.

The parties currently expect McCaw to serve as non-executive chairman of the board. Along with McCaw, other directors expected to serve for an initial one year as new Clearwire board member are Dan Hesse, Sprint's president and CEO, Brian Roberts, Comcast's chairman and CEO, and Glenn Britt, Time Warner Cable's president and CEO. In addition, John Stanton, chairman and CEO of Trilogy Equity Partners and former chairman and CEO of VoiceStream and Western Wireless, is expected to serve on the board.

The new Clearwire will apply for listing of its common stock on the NASDAQ under the ticker "CLWR.” The management team will be led by Benjamin G. Wolff, currently CEO of Clearwire, as the new company's CEO and Barry West, currently Sprint's Chief Technology Officer and XOHM business unit leader, as president of the new Clearwire. Staffing for the new Clearwire will include the talent from both Clearwire and Sprint's XOHM business unit. The headquarters of the new Clearwire will be located in Kirkland, Wash. The new company will continue to have a significant employee presence, including research and development, in Herndon, Va.

The investment by Intel, Google, Comcast, Time Warner and Bright House will be used to advance the development of the new Clearwire's mobile WiMAX network, which is supported by the next-generation wireless broadband spectrum portfolio that Sprint and Clearwire hold in the US. The combined wireless spectrum is expected to 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 US by the end of 2010.

In addition to spectrum, Sprint said it will contribute certain hardware, software and all of its WiMAX-based trademarks and other WiMAX-related intellectual property to the new entity, which 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, as well as utilizing Sprint's towers, fiber network and IT support at favorable bulk rates.

Agreements with the strategic investor group include:

--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.

Further, Google and Intel have options to enter into 3G and 4G wholesale agreements with Clearwire and Sprint respectively but do not have current plans to do so.

Under the terms of the agreement, Clearwire will merge into a newly created indirect subsidiary. In the merger, shares of Clearwire's Class A Common Stock, together with all outstanding options and warrants to purchase shares of Clearwire stock, will be converted into an equivalent number of new shares, options or warrants, respectively, in the new Clearwire. Additionally, all of Clearwire's outstanding shares of Class B common stock which are held by Eagle River and Intel will convert into shares of Clearwire's Class A Common Stock prior to the merger. Going forward, the shares of the new Clearwire will each have one vote per share. The target price of $20 per share implies a total equity value of approximately $3.9 billion for the existing Clearwire business.

Sprint will contribute all of its 2.5 GHz spectrum and its WiMAX-related assets into a subsidiary of the new company. The implied equity valuation of Sprint's contribution is approximately $7.4 billion which will result in approximately 51 percent ownership, based on the target price of $20 per share.

In terms of the investment breakdown, Comcast will invest $1.05 billion, Intel Capital will invest $1 billion in addition to its previous investments made in Clearwire, Time Warner Cable will invest $550 million, Google will invest $500 million, and Bright House will invest $100 million, for an aggregate total of $3.2 billion.

The investments by Intel Capital, Comcast, Time Warner Cable and Bright House Networks and the contributions from Sprint will be made into a limited liability company subsidiary of the new company, while Google will invest directly in the new Clearwire's Class A common stock. In a separate transaction to occur 90 days after closing, Trilogy Equity Partners will invest $10 million in the purchase of shares of Class A common stock on the same pricing terms as the other investors.

The total transaction value will be approximately $14.5 billion assuming an investment price of $20 per share.