The struggling mobile broadband firm recently reported dull earnings, with red dominating to be the color theme, leading to a mean sell-off. Clearwire then advised that it might need to muster additional capital, despite the fact that it had already received $1 billion in the past few months.
The latest depressing development is that search giant Google revealed in a recent filing over the weekend with the Securities and Exchange Commission that it intends to bid farewell to its 6.5% stake in the company, taking more than a 90% haircut on the investment; that is for $47.1 million, roughly a $453 million knock-off on its $500 million investment in the struggling wireless concern.
Google said it will dispose of the 29 million shares of stock it owns in Clearwire at $1.60 per share. The stake will initially be offered to existing investors starting Monday, but if no one bites, it will open up to the public.
The company mentioned that it sometimes “rebalances its investments based on its goals and its assessment of market conditions.” Way back in 2008, Google had infused a $500 million investment and is now hoping to recoup just $47.1 million of that.
Meanwhile, the sale of the stake, for less than a tenth of what Google paid for it, comes amid mounting obstacles for the loss-making carrier’s prospects, said Christopher King, an analyst with Stifel Nicolaus & Co. in Baltimore. The Bellevue, Washington- based company said this month that it may need new capital to fund operations beyond next year as losses widened in the fourth quarter.
“Clearwire has had financing hurdles,” said King, who recommends holding the shares. “It has got some business-model challenges, with the dominance of Verizon and AT&T,” he said in a telephone interview.
In May 2008, Google assigned about $500 million in Clearwire as part of group of communications and technology firms, including Sprint, Comcast, Intel, Time Warner Cable Inc. and Bright House Networks LLC, which combined invested $3.2 billion. The purchase was part of a plan to reshape Clearwire into a company with 4G, or faster fourth-generation network technology.
By 2009, however, Google said it would not provide Clearwire with anymore funds and instead focus on product and strategy assistance. Also, Intel Corp. wrote off $938 million of its Clearwire investment in the same year, following a decline in the company’s share price.
At the peak of its sheen, Clearwire devised the first nationwide mobile 4G WiMax network, delivering speedy wireless Internet access to consumers, businesses, schools and government agencies in the United States.
Now, with few takers for its technology, Clearwire has exhausted cash since the last four years and said recently that it may need to muster more funds to support its operations beyond 2012. Reliant on Clearwire’s technology, Sprint has supported Clearwire throughout its dark time.