Sprint's Deals Are Facing Opposition

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The third largest US telecom carrier, Sprint (NYSE: S), is facing opposition from a Clearwire (NASDAQ: CLWR) investor which has stepped up to block Sprint’s $2.97 a share deal with the company. Crest Financial, which has about 8.3% stake in Clearwire, is also against Sprint’s $20.1 billion deal with the Japanese carrier Softbank. The investor plans to take up the matter and file a complaint with the Federal Communications Commission (FCC) before January 28 and ask the regulatory body to block both deals. Crest has already filed a suit against Clearwire in the Court of Chancery in Delaware to obstruct its deal with the Kansas carrier.

Crest’s General Counsel Dave Schumacher said that there are quite a few minority investors that have expressed their dissatisfaction with respect to the deal. However, the investment fund did not disclose further details on it.

An expected step
Sprint should not be surprised to witness such road blocks given the price it offered for Clearwire’s acquisition. Although the investor hasn’t come up with its own valuation calculation of the regional carrier, it considers that the $2.97 per share offer for the company severely undervalues Clearwire’s true worth. Crest shall express its concern with the FCC as it believes that the carrier’s spectrum asset is being underrated and this would not serve the shareholders interest.

In addition, if the takeover is given a go-ahead it would adversely impact the prices of the airwaves at the incentive auction which is expected to fatten the US treasury. Schumacher said, ‘by artificially pushing down the price of Clearwire spectrum, Sprint and Clearwire threaten to devalue future government auctions of spectrum.’ This would also hurt the taxpayers who could be burdened if the amount collected from the auction fails to satisfy the expectation of the government.

The Houston-based Clearwire investor is confident that the FCC would consider its petition and screen both the transactions closely. However, both Clearwire Chief Executive and Sprint aren’t convinced with Crest’s reasoning as they feel that the step is in the best interest of both the entities and American consumers at large.

A win-win deal
Scott Sloat, a Sprint spokesperson says that the deal is for the good of both the companies and would benefit customers as well. Even Clearwire Executive Erik Prusch pointed out that this is the best option for the company as it has insufficient funds for network building and has no other attractive alternative other than accepting Sprint’s proposal. The company also said that its board had been considering a number of strategic options for the past two years, but Sprint’s offer is the best by far.

The deal needs a green light from majority of the Bellevue-based carrier’s minority shareholders. Sprint has already won the support of three major Clearwire investors: Intel, Comcast and Bright House. However, Crest Financial has not extended its support. This investment firm is not the only one which is against the deals; Dish Network (NASDAQ: DISH) also sees this merger as menacing its own prospects with Sprint.

Dish rules out the Sprint option
Dish has been looking to partner with one of the major telecom carriers to build an LTE network and was in talks with Sprint last month to assist it in the process. As per their discussion, Sprint would get access to Dish’s unused spectrum, while the satellite TV provider would use Sprint’s network to offer wireless mobile services. However, Dish is now concerned about the effect of a foreign company such as Softbank having so much spectrum access in the US market. In addition, the Clearwire deal would significantly augment the spectrum position of Sprint. Sprint’s plan to takeover Clearwire led Dish to give another thought on partnering with the Kansas carrier as ‘spectrum's like oil, gold or water - you can't get enough of it’. Dish would rather consider other alternatives such as partnering with Verizon which is doing pretty well with the cable spectrum, or AT&T which requires more airwaves.

My takeaway
Where Sprint is headed remains a question. While the Clearwire investor has opposed Sprint’s takeover strategy, Dish has taken a step back on its collaboration program with the third largest US telecom operator on grounds that the carrier would have an unfair access to too much spectrum. Will the Clearwire deal receive the FCC approval? What steps will the regulator take to ensure control on too much spectrum access? Will Sprint manage to overcome the road bumps?

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