Aurelius Files Suit to Block Clearwire-Sprint Deal

   By Nathalie Tadena 
 

Hedge fund Aurelius Capital Management LP has filed a lawsuit against Clearwire Corp. (CLWR) and Sprint Nextel Corp. (S), claiming the terms of the companies' proposed $2.2 billion merger are unfair to Clearwire's minority shareholders.

Aurelius alleges Clearwire's board and Sprint violated their fiduciary duties to the wireless- broadband provider's minority shareholders and called the proposed tie-up a "coercive freeze-out merger." In its complaint filed in court in Delaware on Friday, Aurelius said Sprint, which is Clearwire's controlling shareholder, dictated terms for the merger that are "manifestly unfair" and said Clearwire's board acquiesced to these terms.

"Sprint dictated merger terms to a Clearwire board that Sprint dominated, 'negotiating' the transaction with a Clearwire chairman that Sprint nominated," Aurelius said its complaint. "As a result, the merger price is a steal for Sprint, quite literally."

Sprint and Clearwire both said they have no comment.

In December, Sprint offered to buy the portion of Clearwire it doesn't already own in a $2.2 billion deal and agreed to provide the broadband provider with as much as $800 million in financing that it could draw on in installments of $80 million over 10 months beginning in January. Clearwire has tapped that financing for both March and April, but it hasn't disclosed if it will take the May financing.

Sprint owns more than 50% of Clearwire and needs the majority of other shareholders to back the deal, but it has faced strong opposition from some shareholders. Crest Financial, which says it is Clearwire's largest shareholder unaligned with Sprint, has also sued to block the merger and started the process of waging a proxy campaign against the deal.

Aurelius, which currently owns more than 17 million Clearwire shares, and Crest have both provided alternative financing offers to Clearwire. Clearwire must get approval from Sprint to raise capital and Sprint has declined those offers.

On Thursday, Clearwire said its board remains committed to its agreement to be bought by Sprint, but that it continues to assess offers from Dish Network Corp. (DISH) and Verizon Wireless. Dish made a rival proposal for some or all of Clearwire before recently making a surprise bid for all of Sprint. Verizon Wireless, a joint venture of Verizon Communications Inc. (VZ) and Vodafone Group PLC (VOD, VODPF, VOD.LN), also has made a bid for certain wireless spectrum controlled by Clearwire.

Clearwire controls large bands of airwaves, the demand for which has driven many wireless deals as data consumption continues to rise and airwaves are limited. But a bid for any part of Clearwire may be difficult to complete if Sprint doesn't approve it.

Clearwire's shareholders are slated to vote on the proposed merger on May 21.

Clearwire's Class A shares closed at $3.44 and were unchanged after hours. The stock is up 19% since the start of the year.

Clearwire had 699.2 million Class A shares outstanding and 773.7 million Class B shares outstanding as of April 23.

Write to Nathalie Tadena at [e-mail]

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