The ongoing battle for spectrum-laden telecommunications firm Clearwire (NASDAQ: CLWR) has taken a turn from superiority arguments to that of legality. This week, majority equity owner and financier (as well as a pending takeover target) Sprint (NYSE: S) alleged that challenging bidder DISH Network (NASDAQ: DISH) not only offers an inferior bid to Clearwire shareholders, but that it cannot legally be done. Unsurprisingly, DISH management was quick to disagree. For investors in all three companies, the news has some important implications. Here's what you need to know.
As has been in play since late last year, both Sprint and DISH want Clearwire for its valuable spectrum. Sprint being the current majority shareholder and the coffer from which Clearwire has tapped multiple rounds of short-term financing, it has been long-speculated that Sprint would be the most obvious and natural choice for a buyer. But, ever since DISH began offering superior bids, which have now reached $4.40 per share (more than a dollar above Sprint's bid), minority holders of Clearwire stock have shown strong support for the larger bid.
Sprint management, as well as Clearwire's board, has issued multiple statements laying out why DISH's larger per share offer is misleading and ultimately not in the best interest of shareholders, but now that tone has shifted.
Dan Hesse, CEO of Sprint, wrote to Clearwire's board illuminating his company's belief that DISH's offer violates Delaware law (where the company is incorporated) and conflicts with the terms of Sprint's investment in Clearwire.
DISH's Charlie Ergen quickly responded with the following (paraphrased here):
- Entering into the covenants does not violate Delaware law, and neither law nor incorporation documents prohibit Clearwire from granting pre-emptive rights.
- DISH financing does not require Sprint's consent.
- DISH's offer does not require 75% of shareholder approval in addition to Comcast's approval.
The response was very thorough, and included enough legal jargon to confuse most minority shareholders who do not have a legal firm on retainer.
Some believe that DISH management has created this delicate M&A dance between it, Clearwire, Sprint, and SoftBank, not to necessarily own either Clearwire or Sprint, but to coerce parties into making an agreement that awards DISH spectrum and to prevent SoftBank from owning Sprint outright.
This would allow for the three companies to work together, aiding DISH in its quest for a wireless network that piggybacks on the existing networks of the other companies.
As has increasingly been the case with this story, the details are relatively confusing, and the ultimate motives may not yet have been revealed to the public. But, for DISH investors who have bought into the idea of DISH as a telecom power play, the various outcomes of this debacle nearly all point toward a favorable situation for the satellite television provider.
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