Sprint Is Confident Despite Dish’s Counterbid

Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

This is the second time the satellite provider Dish Network (NASDAQ: DISH) attempted to block Sprint’s (NYSE: S) deal with Clearwire (NASDAQ: CLWR). This time it is by way of a counterbid for the Bellevue based carrier. The regional carrier, which was evaluating Sprint’s $2.97 a share offer, received a $3.30 a share proposal from Dish that is 11% over what the Kansas carrier proposed. As per the terms of the deal, Dish would offer $2.2 billion to acquire 24% of the carrier’s airwaves while Clearwire would assist the satellite TV provider build a wireless network. The company would also obtain an additional finance of $800 million from Dish for its network building process.

Dish, which managed to amass spectrum worth $3 billion from a number of deals, recently won the FCC approval to convert its airwaves for wireless phone network use. The company would finally get a partner it has long awaited for to enter the wireless industry in case the deal materializes. A partner with a running network would strengthen Dish’s position while negotiating with industry biggies Verizon, AT&T, T-Mobile and Sprint. Dish complains that entering the telecom sector has become difficult of late.

The entry barrier
The wireless industry has been in a consolidation mode for the past few months. While T-Mobile is busy with its merger deal with prepaid carrier MetroPCS, Sprint is awaiting the FCC approval for its Softbank deal. Not only this, the third largest US carrier also plans to buy the remaining Clearwire. This leaves Dish virtually with no options. However, Sprint’s offer of $2.97 gave Dish an opportunity to counterbid as a group of Clearwire investors is dissatisfied since they consider that Sprint’s proposal severely undervalues Clearwire’s spectrum asset.

But is Dish really interested in Clearwire? What are its intentions?

Behind the scenes
In the first instance, Dish’s interest in Clearwire appears particularly weird as the former has been looking to partner with stronger industry players. In contrast, Clearwire looks like a struggling little carrier looking for financial assistance. Making a counter offer could be a move to grab Clearwire out of Sprint’s hands. Dish has its eyes on the regional player’s spectrum and the higher offer could attract the carrier consider the proposal and sell some airwaves. It may also so happen that Sprint would consider entering in a network sharing partnership with Dish. A special Clearwire committee has already been formed to evaluate the satellite provider’s option against Sprint’s proposal.

No matter what, Sprint remains carefree.

Sprinting with confidence
Sprint appears to be overflowing with confidence as the carrier feels that its offer to Clearwire is undoubtedly superior to Dish’s proposal. The biggest shareholder of Clearwire does not need to raise its offer price to beat Dish’s counterbid.

Even if Clearwire’s special committee supports Dish’s offer, Sprint has the option to compel a shareholder vote in June in which it would have an advantage by dint of its position. In addition, a Sprint spokesperson pointed out that the interlinked commercial agreements involved in the Dish proposal aren’t feasible. Sprint would need to voluntarily give up all its rights as a Clearwire stakeholder which the national player does not intend to.

Sprint owns about half of Clearwire and has set dozens of contractual agreement to obstruct another company to seek a deal. It has an upper-hand and would not let the Dish deal happen. Any sale by Clearwire would require approval from at least 75% shareholders of the company and Sprint wouldn’t give a go-ahead. The Dish deal will face several hurdles and remains unlikely to happen.

The bottom-line
Dish has for long been attempting to enter the wireless world by partnering with an appropriate carrier. The intension behind its offer to Clearwire still remains a bit mysterious. Is it to block the Sprint’s deal? Is it because Dish wishes to enhance its spectrum holding? Or is it really that the satellite company finds Clearwire’s high frequency band attractive? However, one thing is for certain: Clearwire is under tremendous pressure to act reasonably enough to justify its action. Will it consider Dish’s offer? If not what grounds will it put forward to validate its act to its unhappy investors?

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