Bidding War Between Communications Giants

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Bellevue, Washington-based Clearwire (NASDAQ: CLWR) has become the target of a nascent bidding war between wireless provider Sprint-Nextel Corporation (NYSE: S) and satellite television giant Dish Network (NASDAQ: DISH). The two larger companies have each floated bids for the fourth-generation wireless broadband provider and look poised to continue their quest to absorb the company's valuable communications infrastructure. Although Sprint already owns a majority stake in Clearwire, Dish's bid for the firm is substantially higher. As such, Clearwire's fate remains undetermined.

Sprint's initial offer for Clearwire came in at $2.97 per share. The Overland Park, Kansas-based wireless company offered to purchase the entirety of Clearwire's remaining shares in an all-cash deal that valued the company at slightly less than $2.1 billion. At Clearwire's current per-share price of $3.14, this bid represents a 6.4 percent discount. However, it represented a 24 percent premium relative to Clearwire's pre-announcement closing price of $2.39 per share.

Dish Network's December 2012 bid raised the offer price for Clearwire to $3.30 per share. This represents a 5.1 percent premium over the company's current share price. It should be noted that Clearwire traded below $1 on several occasions during the summer of 2012. The company's shares perked up only after rumors of a potential buyout began circulating in late July of that year.

Clearwire is a relatively small provider of broadband and wireless services. It operates multiple "4G" networks and sells phones and computing equipment through a network of retail partners. It has largely been boxed out of the discount wireless space by its main competitors, including budget wireless providers LEAP Wireless and MetroPCS. As such, it has been hemorrhaging customers for several years.

Founded in 1899, Sprint benefited immensely from the breakup of AT&T in the early 1980s. Once a major land-line telephone operator, Sprint is now the third-largest North American wireless provider. The company offers talk, text and data services through a patchwork of "3G" and "4G" networks. It also provides a major assortment of commercial services through its Wireline division and offers pay-per-minute talk packages through subsidiaries like Boost Mobile and Virgin Mobile.

Dish Network is the second-largest provider of satellite television services in the United States. In addition to its 14 million subscription-based television customers, the company serves several million SiriusXM radio customers and offers syndicated broadband Internet services in certain rural regions of the United States. Dish Network operates in over 200 local television markets and provides movies, syndicated television shows and video games through its "Blockbuster at Home" subsidiary. The company employs about 34,000 people and earned $740 million on $14.3 billion in revenue in 2011.

Which Offer is Better?
Sprint argues that its all-cash bid for Clearwire is more "straightforward" than Dish's offer. On its face, this assertion is true. However, Sprint's position is complicated by the fact that it is currently seeking a buyer to help offset its own considerable debt load. Currently, it is entertaining a bid from Japanese wireless giant Softbank. With Softbank expressing considerable reservations about a potential bidding war between Sprint and Dish, it appears unlikely that Sprint will seek to raise its bid for Clearwire substantially. If Clearwire chooses to accept the Dish deal, Sprint may have no choice but to withdraw its offer and accept Softbank's buyout bid.

Clearwire has offered no clear indication of its intentions. Although the logistics of a Sprint takeover would be far easier to manage, Dish's bid does offer a 13 percent premium to the Kansas-based wireless provider's offer. In addition, Dish probably needs Clearwire's rural broadband assets more than Sprint does. As such, Dish appears to be gearing up for a protracted fight with its larger rival.

To reinforce its position, Dish has filed a suit with the FCC to investigate the terms of the $20.1 billion Softbank-Sprint merger. It appears that Dish would like to cut off a key source of financing for the Sprint-Clearwire deal by shutting down Softbank's buyout of Sprint. Without Softbank's heft behind it, Sprint would be unable to come up with the capital to finance its initial $2.97-per share bid for Clearwire. If Dish is successful in persuading the FCC to delay or scuttle the Sprint-Softbank merger, the satellite provider may end up with Clearwire by default.

The Future of the Deals
The next quarter will prove instrumental to this drama. If the FCC does not accept Dish Network's reasoning, it is likely that Softbank will purchase Sprint. In turn, this will provide Sprint with the capital to purchase Clearwire in a clean cash-for-stock deal. On the other hand, a scuttled Softbank-Sprint deal would provide Dish with an opening to seize Clearwire. Pending the outcome of a shareholder vote, a Sprint-Clearwire deal would be likely to clear by the end of the second quarter of 2013. On the other hand, a Dish buyout of the broadband provider would require additional regulatory scrutiny and a vote by Clearwire's board of directors. As such, it would be unlikely to clear before the end of the third quarter of 2013.


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