Delaware Judge OKs Sprint-Clearwire Merger

(CN) – A Delaware judge ruled that Sprint did not breach its fiduciary duty to shareholders when it paid $5 per share to acquire the remaining half of Clearwire’s equity it did not already control when the companies merged four years ago.

The merger was part of a larger effort by Japan’s largest telecommunications company, Softbank, to move into the North American market. It was challenged by Aurelius Capital Management, which held shares of Clearwire stock and filed a lawsuit claiming Sprint breached its fiduciary duty in the merger.

In July 2013, Clearwire and Sprint completed their merger when Sprint paid $5 per share to acquire the remaining 49.8 percent of Clearwire’s equity that Sprint did not already own. Softbank then acquired majority control of Sprint.

Sprint proved at trial that the fair value of Clearwater’s stock at the time of the merger was $2.13 per share, meaning the $5 per share was more than fair, Vice Chancellor J. Travis Laster wrote in a ruling issued Tuesday.

The judge agreed with a professor’s expert testimony determining the $2.13 value.

Laster dismissed other expert testimony that valued the shares as high as $16.08 as “speculative and assumption-laden.”

He also cited the initial merger consideration of $2.97 per share for Clearwire stock.

“All of the evidence indicating that $2.97 per share was fair is all the more convincing for the final merger consideration of $5.00 per share. [Clearwire’s board members] never contemplated, much less proposed, anything close to $5.00 per share. In December 2012, most market analysts valued Clearwire at far less than $5.00 per share. In May 2013, large Clearwire stockholders told Sprint and Softbank that they believed that ‘Clearwire was worth $4-5,’” Laster wrote in the 97-page ruling.

The opinion refers to Clearwire as a “small telecommunications company” and “the largest private holder of wireless spectrum in the United States” that ran into profitability issues when its service standard, WiMAX, was beaten out by the now-ubiquitous LTE.

It explored a number of potential mergers with AT&T, T-Mobile and PCS, but none of them were finalized.

Softbank then entered the picture, as it planned to acquire both Sprint and T-Mobile and merge them into one company that might compete with industry giants Verizon and AT&T.

Softbank’s Japanese network used the same service standard as Clearwire, so its CEO and founder, Masayoshi Son, believed he could use the existing network, calling it key for the company’s success in the U.S.

Softbank planed to acquire Clearwire through Sprint, and attempted to have Sprint buy Clearwire before its own purchase of Sprint was completed.

The potential acquisition was reported in the news, causing a 70 percent rise in Clearwire’s stock to $2.22 per share.

Clearwire then requested a new price-per-share from Sprint. Eagle River Holdings, Clearwire’s majority holder, and Sprint agreed to a sale price of $2.97 per share.

Clearwire’s CEO, John Stanton, then began shopping the remaining, minority-held shares.

After back and forth talks with DISH Network and Sprint, Sprint and Clearwire eventually came to an agreement on $5 per share in June 2013, with 82 percent of Clearwire shareholders agreeing to the merger.

The Clearwire-Sprint merger closed on July 9, and the Softbank-Sprint merger closed the next day.

In Tuesday’s ruling, Vice Chancellor Laster concluded that the fair value of Clearwire stock on the date of the merger was $2.13 per share.

“The defendants proved for purposes of the fiduciary analysis that the Clearwire- Sprint Merger was entirely fair. They also proved for purposes of the appraisal proceeding that the fair value of Clearwire on the closing date was $2.13 per share,” he wrote.

Representatives from Sprint and Aurelius did not respond Thursday to phone calls requesting comment.

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