Clearwire chooses Dish instead of Sprint

Clearwire's (NASDAQ:CLWR) board of directors unanimously recommended that shareholders accept Dish Network's (NASDAQ: DISH) $4.40 per share bid for Clearwire instead of Sprint Nextel's (NYSE:S) $3.40 per share offer to take control of Clearwire. Clearwire said it will delay until June 24 a vote on the transaction.

Dish made its new offer on May 30, and since then Dish and Sprint have clashed over whether Dish's offer is actionable. Sprint claims that Clearwire's governance structure and Delaware law prohibit Clearwire from taking it up, charges that Dish has sought to rebut.

"Sprint is evaluating today's statement from Clearwire's board and will review any corresponding filings before determining its next steps," Sprint said in a statement. "Sprint continues to have every intention of enforcing its governance rights. All commercial agreements, including network and customer agreements, will be honored and enforced as it regards our ongoing relationship with Clearwire."

"We appreciate Clearwire's recognition of the superior value that we are able to deliver its stockholders," Dish spokesman Bob Toevs told Bloomberg.

The evolving fight for Clearwire continues amid Dish's fight with Japan's SoftBank for control of Sprint itself. SoftBank recently increased its offer for Sprint, and now hopes to take control of 78 percent of Sprint for $21.6 billion in an effort to counter Dish's competing $25.5 billion bid. Sprint said it has ended talks with Dish and gave Dish until June 18 to present its best and final offer; Sprint shareholders are now scheduled to vote on SoftBank's proposal June 25.

The fight for Clearwire between Sprint and Dish could end up in the courts, since it turns on an interpretation of Clearwire's governance structure. Sprint, which is the majority owner of Clearwire, said that Dish's offer cannot be executed without consent of Sprint and other shareholders. Analysts have speculated that Dish could be angling to use the threat of becoming a vocal minority shareholder in Clearwire to get Sprint and SoftBank to sell Dish around 40 MHz of Clearwire's spectrum.

"The economics of it were so much better than Sprint's prior offer," Gerard Hallaren, an analyst at Janco Partners, told Bloomberg. "I suspect Dish will get a good position in Clearwire."

"Dish management have told us that they would like to use [Clearwire's] 2.5 GHz spectrum for fixed wireless and backhaul, to support their plans for the S-band spectrum that they already own (and the L-Band spectrum that they may also eventually own)," New Street Research analyst Jonathan Chaplin wrote in a research note. "We believe this makes it clear that DISH wants to own a network--they are not just amassing spectrum to sell it or to sell themselves." 

While Dish said its offer is for all Clearwire shareholders including majority owner Sprint, it is willing to buy out only minority shareholders as long as it can acquire at least 25 percent of Clearwire's voting stock. Dish said it wants the right to pick at least three Clearwire board members and more if it acquires more of Clearwire's shares. Dish also wants the right to approve changes to Clearwire's structure as well as transactions Clearwire enters into with other companies, including Sprint, unless such deals are approved by "an independent and disinterested board committee."

Sprint argues Dish's latest offer is "not actionable" because certain provisions violate Delaware law, Clearwire's certificate of incorporation or the rights of companies under existing Clearwire Equityholders' Agreement (EHA), including Sprint. Dish disputes the claims. Evidently, Clearwire's board thinks Dish's offer is actionable.

So what will Sprint do next? Sprint could again increase its bid for Clearwire, but might not, given that its newly restructured deal with SoftBank will leave with $3 billion less cash than before, and Dish could always continue to outbid Sprint. 

"If they don't bid more, we think it could mean one of three things: Sprint is fine having Dish as a minority partner in Clearwire.  Sprint and Softbank have both said as much; however, we would be surprised if this is the case," Chaplin wrote.

Second, it could mean that "Sprint knows that Dish really just wants spectrum and they are prepared to trade spectrum for Dish's equity after the fact. This is entirely plausible, although Sprint would be giving Dish a great deal of leverage if they wait until Dish has the equity stake before negotiating the trade.

Or, "Sprint is convinced they can block the Dish deal either under the terms of the equity holder's agreement or under Delaware law. We think this is unlikely given that there is always a risk that Sprint loses a legal challenge and because if Dish's bid fails due to governance conditions, they can always drop the offending conditions."

For more:
- see this Clearwire release
- see this WSJ article (sub. req.)
- see this Bloomberg article

Related Articles:
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
Reports: SoftBank considers deal with T-Mobile if Sprint bid falls through
Sprint sticks to June 12 vote on SoftBank deal as Dish continues to hover
Sprint/SoftBank deal gets mixed reviews from advisory firms
Analysts: SoftBank could 'walk away' from Sprint following Dish's bid for Clearwire
Dish increases bid for Clearwire, topping Sprint's latest offer

Article updated June 12 to include Clearwire's official announcement that it is supporting Dish's bid for Clearwire, as well as a statement from Sprint.

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