Clearwire Latest Spectrum Buy: Non-Dilutive to IPO

Sharon Armbrust | February 22, 2007, 08:03 AM

Clearwire, which lobbied the FCC all through 2006 to force AT&T to jettison its 2.5 GHz spectrum as a prerequisite to the AT&T/BellSouth merger, got its wish Dec. 29, when the $86 bil. merger got FCC approval, under the proviso that AT&T get rid of BLS 2.5 GHz and build out its 2.3 GHz spectrum by 2010(among other prerequisites). And then a little over a month later it got the spectrum too, which clearly was the goal all along. AT&T announced on 2/20 that it would sell 2.5 GHz spectrum in former BellSouth territory to Clearwire for $300 mil. cash.

We estimate that BellSouth has on average about 100 MHz in 40 license areas covering just under 20 mil. pops, which would put the deal value at approximately 16 cents/MHz pop.That's equivalent to the level at which Clearwire is aiming to go public in the next month or so, before adjusting for equity dilution from convertible preferred, warrants, options etc. If it can get its proposed per share offering price of $24/share in its IPO, on a fully diluted basis, the market would be valuing its portfolio (U.S. and international combined) at closer to 26 cents/MHz pop, putting the acquisition from AT&T at just over 60% of its public market price point--on a MHz pop basis. (for detailed analysis of Clearwire pending IPO, see the Wireless Investor report at Kagan Research. www.jupiterresearch.com/bin/item.pl/research:concept/1235/id=98811/