Dish Trumps Sprint's Clearwire Offer by $3 Billion

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It’s no secret that Dish Network (NASDAQ: DISH) wants desperately to acquire more spectrum to expand its business. If you ever doubted its resolve or how far it was willing to go in its quest, its $5.5 billion offer to buy Clearwire (NASDAQ: CLWR) must be a shocker.

Through an unsolicited, non-binding bid, Dish has trumped an offer by Sprint (NYSE: S) to buy out Clearwire. Dish is offering $3.30 per share, which amounts to a whopping $3 billion more than Sprint’s offer of $2.97 a share.

While I admire the hubris shown by Dish, I doubt it will be successful. There are a myriad of reasons for my pessimism. The main reason relates to the tight leash Sprint has on Clearwire in the form of the majority stake it already owns in the company. You may recall my last post about how the telecommunications sector was heating up as players clamor to secure as much spectrum as possible and as customers are burning through the finite resource with their increasing use of smartphones and tablets.

For months, Sprint has been crafting a multifaceted deal with Japan-based SoftBank. Due to be completed this year, the deal provides that the foreign company acquire a 70% stake in Sprint for $20 billion. The transaction would result in an infusion of about $8 billion of cash into Sprint, which Sprint desperately needs to help shore up its finances. However, the deal is contingent on Sprint acquiring the remaining stake it has in Clearwire. Sprint, in the fall, sold $1.5 billion of notes to fund Clearwire and its subsidiary Clearwire Communications for its spectrum.

Dish’s offer entails it buying about a fourth of Clearwire’s spectrum and infusing it with $800 million in additional financing.

If Sprint’s $2.1 billion offer for Clearwire holds up, Sprint would own more spectrum than any other carrier. This would allow it to considerably close the gap between it and number one Verizon and number two AT&T.

Given what’s at stake, I don’t see Sprint simply picking up its toys and going home. It made that clear Tuesday within hours of Dish’s proposition going viral, by releasing the following statement:

“In contrast, the DISH proposal includes a series of interdependent commercial agreements, debt and equity purchases and spectrum sales, which together with the other conditions required by DISH to complete the transaction, makes the proposal not viable. In addition, the DISH proposal 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. Sprint does not intend to waive any of its rights and looks forward to closing the transaction with Clearwire and helping consumers across the country realize the benefits of this combination.”

I can imagine the giddiness of Clearwire execs as they reviewed Dish’s offer. Just a few weeks ago, the company’s president conceded that even though there were concerns that Sprint’s offer was too low, without it, Clearwire would go bankrupt. Now to be propositioned with an offer that is considerably higher has to give Clearwire something to cheer about.

I can also imagine Dish being anxious about the offer considering the series of regulatory hoops it will have to jump through to make it happen. Still, I can understand its resolve, as it really has nothing to lose but a lot to gain.

For years, Dish has tried desperately to secure more spectrum, but efforts to enter the space had been hampered by the frustratingly slow pace of the federal government to give it approval. Even more frustrating, the satellite-TV provider has been sitting on the sidelines watching the main players, like Verizon, in the mobile phone industry get spectrum approval. This has caused the competition gap between it and the big boys to only widen.

Clearwire has a special committee that is mulling over Dish’s offer. It’s going to be interesting to see how Clearwire trades in the coming days. During intraday trading on Wednesday, Clearwire was trading around $3.14 a share. That’s considerably lower than Dish’s offer, but in line with that of Sprint.

Dish may very well be putting itself in a negotiating position, which could be good for shareholders who wanted more than the $2.97 being offered through the Sprint/SoftBank deal. Given how fluid the situation is now, I’d steer clear of buying Sprint and Dish. I’d consider Clearwire, however, because it seems a bidding war is in motion and the stock will likely trade higher from here.

TwillyD has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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