Dish Makes a Move on Clearwire

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The third largest US telecom player Sprint (NYSE: S) has chalked out bold plans to combat the biggies of the US telecom space and is aggressively looking forward to acquiring the rest of Clearwire (NASDAQ: CLWR), especially after the Japanese telecom giant SoftBank acquired a controlling interest in Sprint. However, this deal has been facing oppositions from various angles, and this doesn’t surprise me a bit as I never expected the Sprint-Clearwire deal to go ahead without a hitch. And this time, the entity that is trying to break the deal is none other than the second largest US DTH company, Dish Network (NASDAQ: DISH).

As reported by Bloomberg, Dish Network made a counter bid to Clearwire and has offered $3.30 per share, which is almost 11 percent higher than Sprint’s $2.97 per share bid. While Sprint valued Clearwire at just $4.34 billion, Dish’s per share bid pushed up Clearwire’s value to $5.15 billion, adding fuel to opinions that Sprint is severely undervaluing the company. However, Dish isn’t looking at acquiring the entire available shares of Clearwire (i.e. shares excluding Sprint’s current ownership), and the company is offering $2.2 billion for obtaining 24% of Clearwire’s spectrum. Bloomberg further added, “The transaction would require Clearwire shareholders to sell at least 25 percent of the stock and wouldn’t be dependent on Sprint’s participation.” Soon after the announcement, shares in Clearwire jumped as much as 8% to $3.16, a value higher than Sprint’s bid of $2.97.

Both Sprint and Dish have plans to make it big in the telecom space and thus, both are in dire need of spectrum. Now, spectrum is such a thing that can’t be generated. Spectrum is a finite natural resource and companies can increase their holding only by obtaining spectrum from other players in the space. Sprint already owns 51 MHz of spectrum and wants to expand by acquiring Clearwire’s 133 MHz of spectrum and thus setup its 4G LTE offering. Side by side, even Dish has been working hard to obtain more and more spectrum. Though Dish is a satellite-television company, it wants to expand into the mobile business and already got a leg up in 2011 when it acquired a series of companies with access to owned spectrum, such as Blockbuster, DBSD North America and TerreStar.

Initially, Dish was on Sprint’s side. In 2012 December, Dish and Sprint were in talks about a partnership that would allow Sprint to use Dish’s mobile airwaves, and in return Dish would get to offer mobile services using Sprint’s network. However, Dish didn’t proceed further with the discussion and went ahead with a counter bid to acquire interest in Clearwire. Nigam Arora, through his write-up on the Forbes website, calls it Dish’s battle with Sprint over Clearwire’s pot of gold.

How successful Dish will be remains a question. Sprint believes the offer made by Dish is “illusory” and “inferior,” while its offer is “superior to the highly conditional DISH proposal.” Moreover, the chances that the offer will not materialize are high. Sprint already enjoys a majority interest in the company and that entitles it to several rights. Sprint said the success of Dish’s bid would "require Sprint to voluntarily waive rights that it holds as a stockholder of Clearwire and that it possesses through various vendor and customer contracts that significantly predate Sprint’s proposed acquisition of the remainder of Clearwire" and the telecom giant has no intentions of doing that. Thus, it seems there is no way Dish can acquire any portion of Clearwire. But still, Clearwire said its board will be analyzing the offer.

However, all this doesn’t mean the S-CLWR deal can easily move ahead. In order for the deal to close, a majority vote from the minority shareholders of Clearwire is required. But Clearwire’s second biggest investor, Crest Financial, with 8.3% stake in the company, is against the deal and has already raised objections. And Crest is not the only minority shareholder that has expressed concerns over the deal. There are several others too.

Crest’s concerns are: From a shareholder’s viewpoint the company feels Sprint is severely undervaluing Clearwire and from an economic viewpoint the company feels Sprint getting Clearwire’s spectrum for such a low price could hurt the value of the spectrum, making it a concern for the Federal Communications Commission (FCC). Also, the company feels Sprint did not play it fair with the Eagle River Holdings deal (the deal that gave Sprint the majority control over Clearwire) as it didn’t issue any public notice. And ever since Sprint got the “de facto control,” the telecom giant has been trying to “squeeze out all of Clearwire’s minority shareholders, including Crest.”

How true Crest’s accusation is or what is in the future of the deal in not certain yet. It will depend a lot on how the FCC handles the matter and what they feel will be better for the shareholders of both the companies and public at large. One point that is certain is, both Sprint and Dish are in need of spectrum and Clearwire is an entity that can come in handy. If Sprint gains full control of Clearwire, it will have the chance to become a much stronger player in the space and challenge the dominance of Verizon and AT&T. And if Dish can get the 24% control on Clearwire’s spectrum, it will be able to become something more than just a satellite-television provider.

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