Dish Continues to Play Chess in the Fight for Spectrum

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Our country’s continuous and growing need for data is showing no signs of slowing, nor is it expected. This data needs spectrum in order to effectively flow from space-to-space; as a shortage of spectrum could be compared to a busy interstate where, in this case, data would move at a slower rate like bumper-to-bumper traffic. This brings me to the battle over spectrum, and the craziness that is Sprint Nextel (NYSE: S) and Clearwire’s (NASDAQ: CLWR) acquisition; and the monkey-wrench that was thrown into the equation on early Wednesday morning.

I have covered the rumors, facts, and details of the Sprint/Clearwire acquisition from day one and have always insisted that the deal would not go through due to the FCC blocking it. I have believed that the outrage from investors would put pressure on the FCC and the combination of lost government revenue and foreign spectrum control would be the catalysts behind the decision. Furthermore, Dish Network’s (NASDAQ: DISH) relentless pursuit to stop the acquisition led me to believe that they wanted to continue talks with Sprint about a partnership; seeing as how Dish’s spectrum was recently approved for 4G.

The news that Dish made a $3.30 a share offer to acquire Clearwire left me dumbfounded as it appeared that I had been forming an incorrect theory.  Because after all, you never know what a company is planning, nor do you know the conversations that take place behind closed doors. But after further consideration I am not so certain that the Dish offer is not an attempt to cut a deal with Sprint, or an attempt to force Sprint into a larger bid than it’s willing to offer. This may sound crazy, but I think that Dish wants this partnership with Sprint so bad that it would ensure that every measure is taken to block Sprint’s acquisition.

As I covered in a previous article, Dish and Sprint were in talks about a partnership that would allow Sprint to use Dish’s spectrum and for Dish to offer mobile services through Sprint’s network. This would save both heavily indebted companies money, but the deal fell through when it looked as though the FCC would not allow Dish to use its spectrum for 4G.

So if Dish has the spectrum to offer mobile then what in the world does it want with Clearwire? This is the question that I have been asking myself since the news was announced after the market closed on Tuesday. However, does the offer even make sense? According to what we know, the proposal requires that Clearwire sell Dish 24% of its spectrum for $2.2 billion and then use the proceeds to pay its debt; and to then build Dish a 4G network.

It’s a strange offer, not one you usually see when a company makes a serious acquisition offer; because Dish is asking that Clearwire operate in a certain way with proceeds that would eliminate only half of Clearwire’s debt, but requiring that it pays its debt. Therefore, how would Clearwire then build Dish a 4G network? Even Sprint believes the deal is ludicrous, calling it “not viable… in light of Clearwire’s current legal and contractual obligations”.

In my opinion, Dish’s offer was an attempt to force Sprint to make a larger bid just in case the FCC does not block the deal. So far, analysts from Bernstein, Jefferies and Macquarie agree that the “offer” is in some way a chess move to create a “behind-the-scenes” deal with Sprint. Besides, Sprint owns the majority of Clearwire shares, meaning they could fight any agreement.

Dish’s offer to Clearwire was a definite head-scratcher, but one that shouldn’t be taken too seriously. In the end it was meaningless, a move that will only hurt Clearwire investors. It will hurt Clearwire investors because its stock rose 7.19% on an offer that will never materialize. But then again, if my theory is correct, then Clearwire investors are going to be hurt a lot more when the FCC blocks the Sprint acquisition, and then again, hurt their pride, when Sprint partners with Dish Network. 

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