Dish Network Offer to Clearwire Threatens to Stall Sprint Buyout Plans
Dish Network offered a premium purchase price for the part of Clearwire not already owned by Sprint in a last-minute effort to disrupt the carrier’s purchase of wireless spectrum it must obtain to stay competitive with AT&T and Verizon. But why is Clearwire suddenly so attractive to Dish?
Dish Network has thrown up a potential roadblock to Sprint’s proposal to buy up the rest of wireless carrier Clearwire, which, until now, seemed destined to sail through the regulatory review process.
However, Clearwire confirmed on Jan. 9 that it had received an unsolicited offer from Dish Network to buy the company's available stock for $3.30 per share, which is 33 cents per share more than what Sprint offered to Clearwire late last year. Sprint already owns 51 percent of Clearwire and it moved to buy up the rest of the company after Sprint agreed to sell itself to SoftBank, a Japanese telecommunications company.
So can Dish manage to buy Clearwire when Sprint already owns controlling interest in the company? The answer is no, it can’t. But it can cause endless problems for Sprint to the point that Sprint may agree to some sort of accommodation just to make Dish go away.
With its sweetened offer, Dish can try to entice enough non-Sprint shareholders to sell their stock at its premium price to force Clearwire to give Dish a share of their board. With that, Dish can attempt to force changes in Sprint’s acquisition agreement with Clearwire. Clearwire, meanwhile, is required to at least consider the Dish offer. However Clearwire also provided a long list of reasons why the Dish acquisition effort was unlikely to happen, including existing contractual requirements with Sprint.
Sprint, as you might imagine, is none too thrilled. “Sprint believes its agreement to acquire Clearwire, which offers Clearwire shareholders certain and attractive value, is superior to the highly conditional Dish proposal,” the company said in a prepared 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.”
In other words, Sprint is telling the world that Dish’s plans are not going to happen. This meshes closely with Clearwire’s statement. Still, Clearwire did appoint a Special Committee to discuss the offer with Dish. “We look forward to working with Clearwire’s Special Committee as it evaluates our proposal,” said Tom Cullen, Dish executive vice president of Corporate Development, in a prepared statement.
There are, of course, a lot more questions than answers, but the primary question is what’s in this for Dish? The likely answer is at least a form of corporate extortion and, at best, access to the Clearwire network for its own communications network.
Assuming Dish manages to buy a quarter of the available non-Sprint stock and in the process force Sprint to give it board representation, Dish can make a huge nuisance of itself. In the process, it could, at least in theory, keep Sprint from buying all of Clearwire. By thwarting Sprint’s plans, at least for a while, Dish can agree to sell its stock at a premium, and also tack on some conditions.
For example, Dish could demand that it have access to the Clearwire network and to the company’s towers as a way to further its own wireless ambitions. Or Dish could simply demand to be bought off so it will go away. This is the corporate extortion I mentioned earlier.
But in reality, it’s hard to see how Dish is in a position to demand very much and Sprint really doesn’t have to pay a lot of attention to Dish in that regard. However, Dish could also buy up a bunch of Clearwire stock and then join in a rumored stockholder lawsuit that apparently claims that Clearwire should have asked for a higher price for its sale to Sprint.
But all of this looks more like an effort by Dish to cause trouble for Sprint than anything else. At this point in the Clearwire acquisition the only hurdle remaining before the deal closes is approval by the Federal Communications Commission’s International Bureau, which has to approve foreign ownership of U.S. carriers. This seems to be moving through the FCC without any hitches. The only other regulatory hurdle was approval by the U.S. Department of Justice, which the deal has already received.
So what can Dish plausibly end up with? Clearly the company thinks it can get a payout from Sprint of some kind. But is it really worth it to spend all of the money Dish has to spend to achieve anything? That’s a question Dish stockholders should be asking of its own directors.