It turns out that if Sprint’s deal with Clearwire falls through, Sprint is going to have to pay Clearwire a $120 million breakup fee. This way Clearwire has some sort of contingency plan if things go awry.
There are many reasons why this deal may not go through:
One: It may not be approved by government regulators, specifically the FCC.
Two: The majority of minority shareholders may not approve the deal, especially since most of them were against the low bid in the first place.
Three: If either Sprint or Clearwire terminate the agreement. This may not happen seeing as Sprint really wants control over Clearwire’s spectrum, and Clearwire needs Sprint in order to avoid bankruptcy.
Four: If Sprint doesn’t complete complete the deal by October 15th, 2013, the agreement will automatically be terminated. This may happen if Sprint’s deal with Softbank fails to go through. Sprint is relying on that money it’ll receive from Softbank to buyout Clearwire.
Christopher King, Stifel Nicolaus analyst, said that the deal between Sprint and Clearwire is “pretty much a done deal”. He also said that despite the decline in Clearwire’s shares, the deal isn’t in any danger of being blocked.
This breakup fee isn’t anything new. There was a similar agreement between AT&T and T-Mobile, and in the end AT&T had to pay T-Mobile $4 billion when the deal failed to pass regulation.
Hopefully this deal goes through. Sprint’s going to need all of the boosts it can get in order to pose a major threat against AT&T and Verizon Wireless.