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Mount Kellett Capital Management LP
("Mount Kellett") today sent a letter to the Clearwire Corporation
CLWR ("Clearwire") Board of Directors outlining issues related to, among
other things, Clearwire's relationship with Sprint Nextel Corporation
S. Full text of the letter follows:
November 1, 2012
Clearwire Corporation
1475 120th Avenue NE
Bellevue, WA 98005
Attn: Board of Directors
Dear Ladies and Gentlemen:
Mount Kellett Capital Management LP ("Mount Kellett" or "we") is a
multi-strategy private investment firm focused on global value, special
situations and opportunistic investing. Mount Kellett and funds and accounts
under common control collectively have beneficial ownership in Clearwire
Corporation ("Clearwire" or the "Company") of 53.2 million shares (the
"Shares"), or approximately 7.3%, of the Company's outstanding voting stock
not controlled by SprintNextel Corp. ("Sprint"), pro-forma for Sprint's
acquisition of shares from Eagle River Holdings ("Eagle River").
Mount Kellett acquired the Shares for investment purposes because we
considered, and continue to consider, Clearwire's stock to be substantially
undervalued. We believed (and continue to believe) that the Company has
significant upside potential as a wireless broadband network operator given
its spectrum holdings and the growth in high-speed wireless demand in the U.S.
As a significant stockholder, we have been carefully monitoring the recent
events relating to Sprint's agreement to acquire outright control of Clearwire
through its acquisition of shares from Eagle River and the resulting right of
Sprint to designate a majority of the Board of Directors of Clearwire's board
of directors (the "Board"), none of which designees are required any longer to
be independent.
This development is particularly significant given that the Company's
build-out program has an estimated funding gap of over $1 billion. Based on
the disclosed run rate of expenditures, we believe that Clearwire has only
enough cash to continue its build-out for approximately 1 year. Perhaps not
coincidentally, the standstill agreement applicable to Sprint that, among
other things, prohibits it from acquiring 100% of the outstanding common stock
of the Company unless the acquisition has been approved by a majority of both
the board of directors and stockholders of Clearwire that are unaffiliated
with Sprint, expires at approximately the same time that the Company's funds
are currently expected to run out.
In our view, the Board - each of the members of which owes his or her
fiduciary duties to ALL of the stockholders, not just the stockholder that
nominated him or her - has an obligation to take all steps to insure that the
Company has adequate cash resources to complete its build-out program and not
to allow the Company to reach a point where the only alternative presented is
Sprint's acquisition of Clearwire at a price that reflects the Company's
unnecessary distress rather than the full value the stockholders could achieve
if the build-out is finished or is clearly capable of being finished.
How can the Board assure that the Company has adequate financial resources?
To us, the answer is obvious: sell excess spectrum. Based on statements by
the Company's CFO on its 4Q11 conference call, "I think 80 megahertz to 100
megahertz is what we need…but we've got 160 megahertz, so we definitely have
some room", the Company owns on average at least 60 - 80 MHz of excess
spectrum capacity within its footprint, when spectrum is in short supply and
commands premium prices. Based on our analysis of the most recent comparable
spectrum transaction, AT&T's purchase of NextWave, we believe Clearwire's
spectrum to be worth at least $0.38 MHZ POP based on the implied price for
useable spectrum held by NextWave. NextWave was a distressed seller that was
in default on its debt agreements. Using this distressed sale benchmark at
$0.38 MHz POP of useable spectrum, we estimate the Company could generate
gross proceeds of $6 - $9 billion if it sold all of its excess spectrum, an
amount that exceeds the current enterprise value of the Company. Assuming the
sale of only a substantial portion but not all, Clearwire's liquidity issues
would be resolved.
Once the Company's liquidity situation is resolved, not only will the value of
the Company's remaining spectrum be properly highlighted, but also the Company
will have a multitude of options on how to proceed. Accelerating demand will
drive a continuing increase in the value of the spectrum and - absent the
turmoil Sprint helped create for the Company the last time a wholesale
contract was negotiated- we believe the Company will be able to command a
premium price for its wholesale services, if not from Sprint, then from others
interested in its capacity. Demand for data continues to increase. The
recently released CTIA Wireless Semi-Annual Wireless Industry Survey shows
twelve-month data traffic grew at 104% year-over-year. This reinforces our
belief that data usage is growing at a rate that far exceeds spectrum supply.
While spectrum values continue to increase, Clearwire faces a liquidity need
now that must be met. The Company's 2011 MVNO agreement with Sprint clearly
defines Excess Capacity and Clearwire's ability to sell, transfer, license,
lease or otherwise dispose of excess spectrum. Holding on to excess spectrum
and letting that value accrue to Sprint, so that Sprint can purchase the
Company's excess spectrum cheaply would be an egregious violation of
stockholder interests. We believe that the Board should immediately hire an
investment bank and task it with running a sales process to sell a substantial
portion of the Company's excess spectrum to the highest bidder or bidders. We
recommend the Board be very firm when setting the rules of an auction. We will
take any attempt by Sprint to chill an auction process very seriously. In
fact, we believe the Board should make it clear to any potential buyer of
assets that Sprint will not be allowed to participate. Should the Board fail
to take the necessary steps and find itself needing to capitulate to a
distressed sale, we will have no choice but to consider whether the Board has
the best interest of the Company and ALL of its stockholders in mind or only
those of its controlling stockholder. In that event, we will consider all
available options to prevent or redress the destruction of stockholder value.
We are also forced to note the recent public statements by Sprint CEO Dan
Hesse of his desire to acquire additional share blocks: "Any time there's an
opportunity at the right price to take out a strategic investor, we will," As
the Board undoubtedly knows, the standstill agreement that Sprint is subject
to prohibits, among other things, "in any manner directly or
indirectly…solicit[ing], negotiat[ing] with or enter[ing] into any agreement
with any third party…or mak[ing] any public announcement of its intention or
desire to do so" with respect to the acquisition of additional stock. Does
the Board intend to allow Sprint to continue what may amount to a creeping
tender offer in this manner? Sprint should declare its intentions publicly
one way or the other - either commit to not continuing to amass more stock and
relinquish its board seats, or make a tender offer to all stockholders to
allow them to evaluate the offer and the future of the Company under Sprint's
control. If the Board instead does nothing and Sprint ultimately acquires the
Company at a bargain price, we intend to consider all available measures to
hold both the Board and Sprint and its affiliates responsible for any losses
inflicted upon the public stockholders as a result.
Moreover, given Sprint's newly solidified position as the controlling party of
Clearwire, the intertwined business arrangements between the two companies and
the potential conflict between the interests of Sprint and those of the public
stockholders of Clearwire, we believe that any transaction between Clearwire
and Sprint should be subject to a very high standard. As evidence of Sprint's
desire to exploit Clearwire as a subsidiary, Dan Hesse stated on the October
15, 2012 call regarding Softbank's investment in Sprint "the two companies
will utilize both FD-LTE and TD-LTE." It is our understanding that as
currently configured, Sprint does not have the spectrum depth or capacity to
offer both a FD and TD network without Clearwire. We urge the Board to commit
to submit any material transaction to a vote of the stockholders unaffiliated
with Sprint so that the stockholders can determine for themselves if the
transaction is at arm's length, on reasonable terms and in the best interest
of Clearwire. If the Board refuses to do so, be aware that the public
stockholders of the Company, including Mount Kellett, will be carefully
scrutinizing any and all such transactions to make those determinations and
avail themselves of all appropriate actions to prevent or redress any
wrongdoing.
We are hopeful that the Board already recognizes its duties, and that the
Board can and will do the right thing. We are available, as always, to
discuss issues relevant to Clearwire at your convenience.
Very truly yours,
MOUNT KELLETT CAPITAL MANAGEMENT LP
By:/s/
Name: Jonathan Fiorello
Title: Chief Operating Officer
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