Analysis: With SoftBank close to getting Sprint, what will happen to Clearwire?

Now that Dish Network (NASDAQ: DISH) has said it will not make a new offer for Sprint Nextel (NYSE:S), clearing the way for SoftBank to get control of Sprint, the most intriguing M&A question is: What will happen to Clearwire (NASDAQ:CLWR), which Dish and Sprint are both pursuing?

Clearwire's vast trove of 2.5 GHz spectrum has been a key part of Sprint's long-term strategy for a long time and was also on the mind of SoftBank Masayoshi Son when he made his bid for Sprint. Dish too wants access to some of Clearwire's airwaves, possibly to deploy a fixed Internet service that would provide homes with speeds of up to 50 Mbps. Clearwire's board has endorsed Dish's $4.40 per share tender offer for at least a 25 percent share in the company over Sprint's $3.40 per share to take control of the rest of Clearwire it does not already own.

Industry and financial analysts think that SoftBank and Sprint will either need to raise their offer for Clearwire or make a deal with Dish Chairman Charlie Ergen.

"It would be a cultural shock for any company to be partnered with Dish or to have any operating arrangement with it," Brean Capital analyst Todd Mitchell told Reuters, noting that Dish has had a history of severing relationships with partners or ending up with them in court. (Sprint has sued both Dish and Clearwire to block Dish's bid.)

Taran Asset Management principal Chris Gleason, whose firm holds about 1 million Clearwire shares, said Sprint will need to make a decisive move--and soon. Clearwire shareholders are set to vote June 24 on Dish's bid, one day ahead of Sprint's shareholder vote on the SoftBank proposal. "You've got to do a significantly higher bid or come to a deal with Charlie this week," Gleason said, referring to Ergen.

Sprint and Dish declined to comment, according to Reuters.

BTG analyst Walter Piecyk wrote in a blog post that Sprint "still likely has an opportunity to negotiate" with Clearwire's minority shareholders to get a deal done. "The threat of lengthy litigation, whether real or not, could resonate with some Clearwire holders, but as we have said for the past [six] months, we think Clearwire holders will want at least $5 to approve a Sprint acquisition," he wrote. 

"If Ergen is able to secure a minority position in Clearwire, it could better position him to extract spectrum and/or a wholesale deal from Sprint," Piecyk added. "On one hand, a spectrum sale would help Sprint's pro-forma debt leverage and establish a broader ecosystem for 2.5/2.6 GHz spectrum. On the other hand, SoftBank would be helping a future competitor obtain the capacity to be more competitive if it sold off spectrum. We believe a central element of [Son's] strategy is the speed and capacity potential of Clearwire's spectrum position and that he would prefer to own it all."

Guggenheim analyst Shing Yin told Reuters that, if Dish becomes a large shareholder in Clearwire, Dish could hinder Sprint's planned use Clearwire's TD-LTE network. "Dish has the potential to disrupt whatever plans SoftBank has for Sprint and Clearwire," Yin said.

Analysts think some kind of deal between SoftBank and Dish is likely. "After all, remember that Dish still has a number of options to make SoftBank's life even more miserable, including mounting a rival bid for the PCS H Block spectrum which Sprint desperately needs to enhance the capacity of its existing LTE network," wrote TMF Associates analyst Tim Farrar. "So maybe the question is now when not if SoftBank will be forced to settle with Dish?"

For more:
- see this Reuters article
- see this BTIG blog post (reg. req.)
- see this TMF Associates blog post

Related Articles:
Dish gives up on Sprint, focuses on acquiring Clearwire
Sprint sues to block Dish's takeover of Clearwire
Previewing its Clearwire plans, Dish tests 50 Mbps fixed LTE service with nTelos spectrum
Clearwire chooses Dish instead of Sprint
If he can't buy Sprint, what is Ergen's plan B? (And C and D?)
SoftBank increases bid for Sprint to $21.6B to counter Dish

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